SWOT Analysis

Strengths, Weaknesses,
Opportunities, and Threats
SWOT
Planning and Organizing Tool

organizational strategic planning

public policy development

personal career planning
Helps focus on key issues
In IVR course:
 helps focus the commercialization research
 feeds into commercialization strategy
Strengths and weaknesses are generally
internal factors.
Opportunities and Threats are generally
external issues.
Strengths
Consider from both the view of the firm (product)
as well as from customers and competitors
Realistic and not modest
One’s strength is another’s weakness
Questions:
 What are the firm’s advantages over others?
 What does the firm do well?

What makes you stand out from your competitors?
Weaknesses
Consider from internal and external viewpoint
Be truthful so that weaknesses may be
overcome as quickly as possible
One’s strength is another’s weakness
Questions.
 What is done poorly?
 What can be improved?

What should be avoided?
Opportunities and Threats
Primarily external in nature
Represent characteristics of:

the research environment

growth in potential markets
 changes in the competitive, economic, political/legal,
technological, or socio-cultural environments
A threat to some is an opportunity to another.
Questions 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?
Questions on threats:
 Are your competitors becoming stronger?
 Are there emerging trends that amplify one of your
weaknesses?
For a company a strength could be:
marketing expertise
location of your business
innovative product
company image
any other aspect that adds value to your product
or service
In the case of Interactive Voice Response (IVR) a
strength could be:
technological capability: speed, efficiency,
precision, power, etc.
stage of development relative to competitors: RIO,
patent, prototype.
characteristics of the lead researcher:
commercialization focus, reputation, other
complimentary work.
cost
For a company a weakness could be:
lack of marketing expertise
undifferentiated products and service (i.e.
in relation to your competitors)
location of your business
damaged reputation
In the case of IVR a weakness could be:
technological weakness: lack of speed,
efficiency, precision or power
lead researcher uninterested in
commercialization
stage of development or uncertainty with
regard to technological capabilities
cost
For a company an opportunity could be:
a developing market such as the Internet.
mergers, joint ventures or strategic alliances
a new international market
a market vacated by an ineffective competitor
any external factor that may create demand or
the possibility for increased profitability
In case of IVR an opportunity could be:
a new or untapped market
an old market needing technological
advances
a recent technological development that
can be used as a catalyst for others
(possibly through licensing)
change in regulatory environment that
creates demand for new technology
For a company a threat could be:
a new competitor in your market
price wars with competitors
a competitor has a new, innovative
product or service
competitors have superior access to
channels of distribution
In the case of IVR a threat could be:
other ongoing research or
commercialization efforts
a large existing competitor
market volatility (because we are new
market entrants)
market access (for supplies or customers)
Word of Caution:

SWOT analysis can be very subjective.
 Do not rely on it too much.
 Two people rarely come-up with the same
final version of SWOT.
Suggestions for conducting SWOT Analysis:
Be realistic; no need to inflate strengths or be in
denial about shortcomings.
Distinguish between where your technology is today,
and where it could be in the future.
Be specific. Avoid grey areas.
Always analyze in the context of your competitive
environment.
Keep your SWOT short and simple.
Using the SWOT Analysis
Weaknesses should be looked at in order
to convert them into strengths.
Try to match your strengths with external
opportunities.
Threats should be converted into
opportunities.
Strengths and opportunities should be
matched.
Expanding Your SWOT Analysis
Delve deeper into the details of the
technology.
Include more detailed competitor
information in the analysis.
Take a closer look at the business
environment.
Expand the reach of a SWOT analysis
through surveys.
Introduction to Corporation
Simulation
 The Simulation Scenario

Your teams acts

as top managers
of a troubled firm
in the dynamic
information
systems industry
 Company XYZ (Your Team)

Y o u r T e a m

S B U # S1 B U # S2 B U #
H a r d w S a o r ef t w aT r u e r n k
 Sales History (p.2)

Period -7 -6

SBU1 900 105

 Overall Objective
You are trying to maximize stock price
THROUGHOUT the simulation.
Your grade is based on your average
stock price THROUGHOUT THE ENTIRE
SIMULATION -- NOT JUST YOUR PRICE
AT THE END!!!!!!!
 Decisions
You will turn in 10 decisions (plus a
practice decision you’ll do in class).
Each decision represents 6 months of
actions for your corporation -- it is
important for you to think of these actions
as more than simply short-term.
You will make corporate and business
level decisions.
 Incidents
We will do several in-class incidents in the
simulation.
Incidents are mini-cases that simulate
other types of decisions top managers of
an international multi-divisional firm might
make.
 Corporate Decisions
Corporate decisions effect every aspect of
the firm.
Examples include amount of financial
leverage and dividends you will give back
to shareholders.
You may buy or sell an SBU from another
team or invest in a new venture.
 Business (SBU) Decisions
SBU decisions directly effect the individual
business units within your corporation.
They include specific product pricing decisions
such as marketing, R&D, and number of
employees.
A corporation can be made up of a single SBU
(ex. Wrigley gum) or many (ex. GE).
 Starting Position
Every company starts out with the exact
sales history (p. 2) and starting positions
(p. 36-37).
Your stock price will depend not only on
your decisions, but also on the decisions
of the other groups.
 OPERATIONS MANAGEMENT DATA
(p.36)
SBU#1 SBU#2 SBU#3 SBU#4

Beginning Capacity 3,600 4,700 5,400 0

Plus Expansion & Purchases 200 300 300 0

Capacity This Period 3,800 5,000 5,700 0

Less Depreciation (5%) 190 250 285 0

Ending Capacity 3,610 4,750 5,415 0

 OPERATIONS MANAGEMENT DATA
(p.36)
SBU#1 SBU#2 SBU#3 SBU#4

Est. of Lost Sales 0 0 0 0

% Defective Goods 3% 3% 3% 0

First Export Area % of Sales 0% 0% 0% 0

First Export Area % Marketing 0% 0% 0% 0

2nd Export Area % of Sales 0% 0% 0% 0

2nd Export Area % Marketing 0% 0% 0% 0

 OPERATIONS MANAGEMENT DATA
(p.36)
SBU#1 SBU#2 SBU#3 SBU#4

Product Innovation Index 100 100 100 0

Number of Sales/ Service Reps 1/1 1/1 1/1 0

Employee Turnover 10% 10% 10% 0

Book Value This SBU ($000) 3,500 4,300 5,225 0

Location of SBU#1 Plant Area 6 0

 CONSOLIDATED INCOME & EXPENSE
STATEMENT

SBU#1 SBU#2 SBU#3

Sales in Units 3,400 4,270 4,970

3,800 capacity
Price 500 500 500

Sales ($000) 1,700 2,135 2,485

3,400 X 500
Cost of Sales 850 1,067 1,242
(50% of 1,700)
Gross Margin 850 1,068 1,243
CONSOLIDATED INCOME & EXPENSE
STATEMENT
Gross Margin (SBU#1) 850
Marketing Expense 125
Operations Technology 65
New Product Research 65
Quality Programs 0
Salesperson/ Service Reps 60
30 for sales/ 30 for service
Human Resource Dev 0
Currency Exchange Cost 0
Depreciation 190
Overhead 200
SBU Profits 145
CONSOLIDATED INCOME & EXPENSE
STATEMENT

SBU Profits 661

Loan Interest Expense 350
Bond Interest Expense 0
Interest Income 0
Mkt Res & Other Exp 31
Profit on Operations 280
SBU Sale Profit/ Loss 0
Profit Before Taxes 280
Less Taxes (40%) 84
Net Profit After Tax 196
Less Dividends Paid 0
Profits Retained 196
 Corporate Decisions
Bank Loan ($000’s) make sure you enter amounts in proper units
Stock Sold/ Repurch. ($000’s) (at least $1,000,000)
Bonds Issued ($000’s) (at least $2,000,000)
Dividends Declared ($000’s) (must show a profit)
Invest. Type (1=CD; 2 = Corp Note) (if you have excess cash)
Investment Amount ($000’s)
Advertise for sale, our SBU# ____
Advertise that We want to Buy a SBU# _____
Sell and SBU to >>>>>>> Co.# ______
We are selling this company our SBU#___
The agreed on Selling Price ($000’s)
Buy Venture # (5-12) (SBU #4 if you purchase a venture)
Market Research ($000’s) (31 is the most you can enter)
Incident Response ____ (enter 0 when there is no incident)
 Decisions For SBU# X
Price/ Unit ($470 to $800) (do not raise or lower drastically each period)
Marketing ($000) (Marketing helps generate sales)
Operations Technology ($000’s) (Reduces production costs--COS)
New Product Research ($000’s) (Ability to provide new features)
Quality Programs ($000’s) (Higher quality product has less defective goods)
Expansion (units) (Ability to meet demand)
Adjust Sales Force (+ or -)
Adjust Service Team (+ or -)
Human Resources Dev. (0-5%)
% Marketing Budget for Export Area 1
First Export Area (1-5)
% Marketing Budget for Export Area 2
Second Exchange Area (1-5)
Forward Exchange Contract (Yes = 1 No = 0)
Location of this Plant (0-6) (SBU#1 only)
 Competitor Information
P. 38 “Economic Indexes this Period” – these
provide general information about the strength of
US and foreign economies
P. 38 “Market Research Studies” provide
competitors sales, profit, spending patterns, and
prices
I will give you all companies stock prices and
market share starting with period 1
 Where Do I Start?
Page 36 describes your
starting position.
Consider the information on
page 36 as a basis for the first
decisions you make.
You probably don’t want to
change things too drastically
early on -- ESPECIALLY
PRICE!!! (remember:
increasing price from 500 to
600 represents a 20%
increase in price – increasing
from 500 to 700 would be a
40% increase in price)
 Where Do I Start?
Try to determine why your
company might be
troubled and what short-
term and long-term steps
can be taken to improve
performance (stock price)
 The Decision Form
The decision form is
unforgiving!
Make sure you ALWAYS
carefully check over your
decisions.
Turn in all decisions on
disks
Paying careful attention to
use the correct units.
ALL GROUPS MUST
TURN IN THEIR
DECISIONS ON TIME!!!
 Keys to Success
Develop a strategy and act accordingly.
A premium quality producer can charge more
for a product, but will have greater expenses
on quality, technology, etc.
A low cost producer should have lower
overhead, but must still put out a product with
good value.
The best companies will develop strategies
for each of their SBUs and consistently
implement their strategy.
 Keys to Success
First mover advantage
Know your competition.
The price you can charge is directly related to the
value/price relationships of the other firms in the industry.
Generally speaking, it is better to be well positioned in
your market. For example, be THE highest priced/
differentiated competitor or THE low cost/ volume
producer.
Spend some on all major expense areas (major areas
are marketing, operations technology and new product
research).
 Keys to Success
Do not give up if you don’t first succeed.
Many companies that start off in the hole can
rebound by the end of the semester.
Make sure you control your debt.
Know your strategy in relation to other
companies.
Pricing and capacity are the two most important
decisions to manage.
Managing cash and debt are the next most
important.
A Rose By Any Other Name?
The first decision you will
make is naming your
company
You want your name to
have some sort of
meaning and stand out in
stakeholders mind’s.
Organizational image and
reputation can be sources
of competitive advantage.
SWOT Analysis
 Sun Tzu’s Art of War
If you know the enemy
and know yourself, you
need not fear the result
of a hundred battles. If
you know yourself but
not the enemy, for every
victory gained you will
also suffer a defeat. If
you know neither the
enemy nor yourself, you
will succumb in every
battle
Chess Strategies for Business
Bruce Pandolfini, one of the
worlds great chess players
and instructors does not teach
his students to become great
chess players.
“My goal,” he says, “is to help
them develop what I consider
to be two of the most important
forms of intelligence: the ability
to read other people, and the
ability to understand oneself.”
 Numerous Environmental
Opportunities

Critical Substantial
Internal Internal
Weaknesses Strengths

Major Environmental
Threats
 Numerous Environmental
Opportunities

Overcome Grow
Weaknesses

Critical Substantial
Internal Internal
Weaknesses Strengths

Restructure Diversify

Major Environmental
Threats
SWOT Analysis in the
Simulation
Analyzing Internal Strengths

High innovation index suggests a

strength in developing new
technologies/ products
Low cost of sales indicates strength
in operations management/
developing scale economies
Understanding current ratio and
debt-to-equity will help you
estimate financial strength
ROA helps indicate strength in
managing resources (assets)
Utilizing market research will help
you understand your strengths
versus competitors
Analyzing Internal Weaknesses
High lost sales indicate
weakness at managing
price and capacity
High overhead may be
due to capacity
mismanagement
High loan/bond interest
expense indicates
financial weakness
Analyzing Environmental
Opportunities/ Threats
Economic forecasts allow
you to see possible
opportunities in both the
US and abroad.
Sales/capacity data allow
you to see if industry is
growing or maturing
 Numerous Environmental
Opportunities
Overcome Grow
Weaknesses ↑ Capacity
↑ Innovation Index Buy SBU
↑ Marketing, etc. Buy Venture
Critical Substantial
Internal Internal
Weaknesses Strengths

Restructure Diversify
↓ Costs Sell SBU
Sell/ Close SBU Export
Major Environmental
Threats
Limitations of SWOT Analysis
Assessment of opportunities
and threats will be biased by
managers’ perceptions of their
firm’s strengths and
weaknesses
Evaluation of a firm’s position
is subjective
It rarely results in clear
recommendations
Managers encounter
widespread disagreement
about whether environmental
events should be interpreted
as an opportunity or threat