BUS300: Operations Management

The genesis of the SWOT approach to strategic planning is usually attributed to Albert S. Humphrey during his tenure with the Stanford Research Institute. Before he died in 2005, Humphrey wrote a brief history of SWOT development. He indicated that it was initiated in 1960 because long-range planning approaches were not working properly. The research team interviewed 1,100 organizations and had 5,000 executives complete a 250-item questionnaire. The approach was originally called SOFT (Satisfactory, Opportunity, Fault, and Threat) but after subsequent adaptations by a number of consultants and academics, it evolved into SWOT. There are devotees of SWOT that believe it originated at Harvard Business School under the guise of Albert Smith, Roland Christensen, and Kenneth Andrew. Even though the SWOT technique can trace its roots to the 1960s, it is still an important and useful tool that is constantly evolving and improving to deal with the ever-increasing complexity of contemporary markets.

The objective of a SWOT analysis is to facilitate the development of a strategy in starting a new venture or large-scale project, completing a large-scale project and diagnosing deficiencies in an existing organization by taking its temperature in a particular environmental context. A SWOT diagram consists of four quadrants (see Figure 8.5 "SWOT Diagram"). The upper two quadrants relate the internal strengths and weaknesses of the organization. The bottom two quadrants relate to the external organizational environment in terms of the opportunities and threats faced by the organization in the marketplace.

Example 1: iPhone 4

Figure 8.6 "iPhone 4 SWOT Analysis" illustrates a SWOT analysis for Apple's iPhone 4. Substitute products are the greatest threat; however, Apple has been able to counterbalance such encroachment by paying attention to product differentiation through research and product development and, of course, the coolness index.

Dell decided to enter the Chinese PC market in the 1990s. They faced many impediments to entering such a complex environment. Figure 8.7 "SWOT Analysis for Dell Entering China" illustrates a hypothetical SWOT analysis for Dell as they embark into the Chinese PC market. The Dell supply chain is top-notch as well as their strong commitment to R&D. They have numerous business process patents as well as product patents. One of the earlier knocks on Dell was that the Chinese culture was not conducive to Dell's golden rules of disdaining inventory, always selling directly, and always listening to the customer. They have subsequently begun to listen to the customer and have started to sell through retail outlets.

Integrated SWOT Analysis

Even though a SWOT analysis is fairly easy to understand and apply, it is not necessarily easy to develop a good one. One of the primary criticisms of SWOT is that it leads to a large laundry list of strengths, weaknesses, opportunities, and threat factors. It is also criticized because it lacks direction and focus. The net effect is that strategic planners are not sure what variables are important or where to start in the process. This is particularly relevant in a world characterized by strong domestic and global competition where risk and uncertainty are driven by the winds of technological change, political turmoil, and governmental actions.

The quick SWOT approach alleviates the deficiencies of traditional SWOT analysis by drawing on the other analytical approaches looking at strategy presented earlier. It takes the key variables in value and supply chain analysis, the five-force model, the resource-based framework, and the technology-based strategy approach and uses them to drive the SWOT process. The critical variables or drivers that influence the SWOT are listed below:

• Internal Organizational Drivers
  • Supply and value chain performance
  • Core competencies and organizational resources
  • Emerging technology
• External Organizational Drivers
  • Threat of substitute products
  • Threat of new entrants
  • Bargaining power of buyers
  • Bargaining power of suppliers
  • Local and world economy, culture, and government influence

Some of the variables influence both the internal and external organizational environment. For example, the supply chain boundary affects the internal environment, but it is also part of the external environment and involves logistics and financial institutions. Similarly, the onslaught of new technologies also influences the internal as well as the external environment. Figure 8.8 "Key Drivers for Quick SWOT Analysis" illustrates the SWOT template along with the key variables that should drive the SWOT analysis.

The Quick SWOT Supported With Strategy Canvas

A SWOT analysis should be conducted very quickly as illustrated below:

1. Conduct a brief external industry analysis.
   • Identify the competitors, buyers, suppliers, potential entrants, and potential substitutes.
   • Understand the industry supply chain and how it works.
2. Conduct a brief internal organizational analysis.
   • Identify organizational capabilities/competencies related to manufacturing prowess, order fulfillment and delivery, customer service, marketing, finance, accounting, R&D, employees, and management. This is essentially the internal supply and value chains.
3. Use a strategy canvas to identify how you can add or subtract features for product differentiation. The idea is to identify new opportunities and perhaps Blue Ocean markets.
4. Develop a 4 × 4 SWOT diagram using the template. Try to limit the number of factors in each quadrant to four factors.
5. Start the process over after 4 months.

Monopolistic Competition and SWOT

Monopolistic competition involves many buyers and many sellers offering slightly different competitive products. Producers are always searching for markets with potential. In such an environment, there are several strengths that are critical for survival. Figure 8.9 "Competing Under Monopolistic Competition Requires Strength in At Least Two Areas" illustrates the idea that if there are substitute products or emerging technology threats, then you need to have 2 out of 3 critical strengths. The critical strengths are research and product development, a high performance supply chain, and a strong brand. The optimum situation is to be strong in all three areas, but this is not very common. If any of these three are placed in the critical weakness category, the organization is definitely at risk. It should also be noted that an organization could be strong in all three critical strengths and still fail. Survival is still linked to long-term profitability. Many of the very successful companies are 3 for 3 and have above-average performance in R&D and a strong brand and excellent supply chain.