What Are the Companys Strengths, Weaknesses, Opportunities and Threats ?

S W O T represents the first letter in

S trengths

W eaknesses
O pportunities T hreats

S
O

W
T

For a companys strategy to be well-conceived, it must be

Matched to its resource strengths and weaknesses Aimed at (a) capturing its best market opportunities and (b) erecting defenses against external threats to its future growth and profitability
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Identifying Resource Strengths and Competitive Capabilities

A strength is something a firm does well or an attribute that enhances its competitiveness
Valuable competencies or know-how Valuable physical assets Valuable human assets/intellectual capital Valuable organizational assets Valuable intangible assets Important competitive capabilities Effective strategic alliances or cooperative partnerships

Resource strengths and competitive capabilities are competitive assets!

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Competencies vs. Core Competencies vs. Distinctive Competencies

A competence is an activity that a company performs with real proficiencyit is usually the product of organizational learning and experience A core competence is a well-performed internal activity central to a companys strategy, competitiveness, and profitability A distinctive competence is a competitively valuable activity a company performs better than its rivals
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Company Competencies and Capabilities

Stem from skills, expertise, and cross-functional collaboration Are usually the product of deliberate efforts to develop expertise and competitive prowess
Selecting people with requisite skills and know-how Upgrading or expanding individual abilities Molding work products of individuals into a collaborative effort to create organizational ability Building competitively valuable intellectual capital

Represent the accumulation of learning over time and gradual buildup of proficiencycannot be developed overnight
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Core Competencies -- A Valuable Company Resource

A competence becomes a core competence when an activity that a company performs particularly well is central to its strategy, competitiveness, and profitability

Typically, a core competence

Results from collaboration among different parts of a companyit grows out of cross-functional know-how and expertise rather than skills/expertise that resides within a single department or operating unit Is intellectual capital and resides in a companys people, not as assets on the balance sheet Gives a company a potentially valuable competitive capability and is thus a competitive asset
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Examples of Core Competencies

Skills in product innovation Expertise in cost efficient supply chain management Ability to speed new/next-generation products to market Better after-sale service capability Skills in manufacturing a reliable or durable or high quality or defect-free product

Capability to fill customer orders accurately and swiftly

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

Determining the Competitive Value of a Company Resource

To be the basis for sustainable competitive advantage, a resource must pass 4 tests:
1. Is the resource hard for rivals to copy?
2. Does the resource have staying power is it durable? 3. Is the resource really competitively superior? Does it actually outclass what rivals have and provide a meaningful edge in attracting and/or pleasing customers?

4. Can the resource be trumped by the different capabilities of rivals?

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Identifying Resource Weaknesses and Competitive Deficiencies

A weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage Resource weaknesses relate to
Inferior or unproven skills, expertise, or intellectual capital Lack of important physical, organizational, or intangible assets Missing capabilities in key areas

Resource weaknesses and deficiencies are competitive liabilities!

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Identifying a Companys Market Opportunities

Opportunities most relevant to a company are those offering
Good match with its financial and organizational resource capabilities Best prospects for profitable long-term growth Potential for competitive advantage
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Identifying External Threats

Slowdowns in market growth Emergence of cheaper/better technologies Introduction of better products by rivals Entry of lower-cost foreign competitors Onerous regulations Intensifying competition Potential of a hostile takeover Unfavorable demographic shifts Adverse shifts in foreign exchange rates Loss of sales to attractive substitute products
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2006 The McGraw-Hill Companies, Inc. All rights reserved.

Role of SWOT Analysis in Crafting a Better Strategy

The most important part of S W O T analysis is using the 4 lists of strengths, weaknesses, opportunities, and threats
To draw conclusions about a companys overall situation and Acting on the conclusions to
Better match a companys strategy to its resource strengths and market opportunities Correct the important weaknesses Defend against external threats
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Fig. 3.2: The Three Steps of SWOT Analysis

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