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The study by Helms and Nixon (2010) identifies that SWOT analysis has grown as a key tool for addressing complex strategic situations by reducing the quantity of information to improve decision making. SWOT is short form of four words which is strengths, weaknesses, opportunities, and threats. It can simply understand as the examination of an organization's internal strengths and weaknesses, and its external environment which is opportunities and threat that provides the foundation for realization of the desired alignment of organization variables or issues. Therefore, an understanding of all external and internal factors is assists in forming a vision of the future.
According to Helms and Nixon (2010), SWOT is a general tool designed to be used in the beginning stages of decision making and as a precursor to strategic planning in various kinds of applications. In summarized, a person is allowed to do something in condition he or she is known strengths and weaknesses and understand the opportunities and threats his or her has currently.
In addition, all organizations are hope to gaining competitive advantage. It can be gain through offering consumers greater value, either by providing lower prices or by providing greater benefits or services that justifies higher prices. The aim of much of business strategy is to achieve a sustainable competitive advantage that could increase the business profitability and brand image.
A SWOT analysis was systematically applied at a national level when preparing the afore-mentioned long-term strategy. However, it is clear that only the quality performance of a SWOT analysis will form a suitable strategic structure. Therefore, the organization environment will much influence organization performance now and in the future. The detail of SWOT analysis is explained in following sections.
Internal environment are an internal factors within an organization in many areas such as management, staff, finance, research and development, operational efficiency and capacity, technical frameworks, culture, and organizational structure. Internal environment consists of strengths and weaknesses in organization, those viewed as a result of factors and variables that can be controlled within organizations.
Strengths are represents the organization's internal power and strong points of view that an organization possess to compete against its competitors. It also can be view as organizational capabilities and internal positive attitudes that enable organizations possess strategic power to achieve organizational goals. It also can define as skills and abilities that enable organizations set out and implement their strategies in order to do better than their competitors.
Weaknesses are represents the organization's negative impact of product and service value with regards to customers or competitive environment. It also can define as shortages in internal capabilities that make organizations unable to achieve their goals or lose their competitive advantage. This may allow their competitors to do better than the organization performance. Thus, it should be determine and acknowledge earlier in order bitter reality without procrastination.
External environment is contains all changes that take places outsides the organization's boundary such as customers, suppliers, economic, political, cultural, and technological changes. External environment consists of opportunities and threats of an organization.
Opportunities are defined as a set of conditions suitable for achieving goals at the right time. Rousan and Qawasmeh (2009) states that opportunities can be divided into three types those are added, supplementary, and explosive. Added opportunity is using the available resources to expand their benefits, so the revenues in this category are limited. Then, supplementary opportunity is where the organizations have to acquire new knowledge. Where explosive opportunity requires organizations to invest capital in R&D to make large changes in organization standards and attributes.
Threats can define as a challenge caused by a negative attitude inconsistent with the organization common norms. Besides, it also can be viewed as any improper event of force in the external environment that causes harm to the organization's strategy. In addition, threats are a set of conditions, resources and capabilities that organizations need to pressured, but cannot influence or control over it, means which is out of our control.
Why Use SWOT Analysis?
SWOT analysis is use to develop a plan or find a solution for an organization's problem. This is because that takes consideration in many different internal and external factors which is maximizes the potential of the strengths and opportunities while minimizing the impact of the weaknesses and threats of an organization.
When to Use SWOT Analysis?
SWOT Analysis is uses when needs to developing a strategic plan or finding a solution to a problem. These tasks are performed by managers, designers or by the entire project team. Teamwork is particularly effective in providing structure, objectivity, clarity and tends to focus further discussions about strategy that might otherwise tend to wander.
SWOT Analysis Usage
SWOT analysis has been used by countless practitioners, marketing researchers, and is a familiar and popular tool for business marketing and strategy areas. This tool is used to assess alternatives and complex decision situations. It can be constructed quickly and can benefit from multiple viewpoints as a brainstorming exercise.
There are three steps to use the SWOT analysis which is firstly analyses the internal factors and then analyses the external factors, and finally create a worksheet. First and foremost, internal analysis is examine the capabilities of an organization's strengths and weaknesses. The planner might list down ideas from projects that both successful and unsuccessful completely in the top row of the SWOT grid.
Second step is external analysis known as environmental analysis Here have to analyses the opportunities and threats or obstacles to organization's performance that place at the bottom row of the SWOT grid. This has to carefully examine the market in which you intend to launch the product and analyze what the status of the competition.
In addition, there have to make a worksheet by creating four quadrants which one each is strengths, weaknesses, opportunities, and threats as shown on table 1.1. This allows planners better understand how strengths can be leveraged to realize new opportunities and understand how weaknesses can slow progress or magnify organizational threats. Then list specific items into the column correctly. But each column is limit to ten or fewer points per heading to avoid over generalizations. If there are more items are thought of, and then have to prioritize them so that only 10 top items for each category.
Table 1.1 Quadrants for SWOT Analysis
Source: Adopted from Strategic Management: Concept and Cases, 2nd ed. (2006)
Finally, the person has to know whether the strengths owned enable to take advantages from the opportunities. Besides, whether the strengths owned is able to overcome the threats that have been identified. Moreover, here also can overcome the identified threat by minimize the weaknesses.
The comprehensive or idea concept of competitive advantage is defined in The Free Encyclopedia of Wikipedia (2010) as a position of a company in a competitive landscape that allows the company earning return on investments higher than the cost of investments. Competitive advantage also is a theory that seeks to address some of the criticisms of comparative advantages, and it should be relevant, unique, and sustainable. Competitive advantage occurs when an organization acquire or develops an attribute or combination of attributes that allows it to outperform its competitors. Besides, it is a gain of attributes and resources in perform at a higher level than others in the same industry or market.
There are two basic types of competitive advantage which is cost advantages and differentiation advantages. Cost advantage is refer to an organization is able to deliver the same benefit as competitors but at a lower cost. However, cost and differentiation advantages are known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation. The figure 1.1 shown the combination of the resource based and positioning views to illustrate the concept of competitive advantage.
ResourcesFigure 1.1 A model of Competitive Advantage
Source: Adopted from QuickMBA.com
According to figure 1.1, the firm must have resources and capabilities that are superior to those of its competitors. Without this superiority, the competitors simply could replicate what the firm was doing and any advantage quickly would disappear. Resources are use to creating a cost or differentiation advantages. The resources include patents and trademarks, proprietary know-how, installed customer base, and brand equity. Besides, the organization also has ability to utilize its resources effectively which refers to capability of the organization. Distinctive competencies are consisting resources and capabilities. Then the organization process value creating activities, the organization operate in upstream suppliers and downstream channel members.
The four strategies relate to the extent to which the scope of a business' activities are narrow verses broad and the extent to which a business seeks to differentiate its products. Competitive strategy consists of moves to attract customer, hold up competitive pressures, and strengthen organization's market position. It purposes are to earn a competitive advantage, cultivate clientele of loyal customers, and knock the sock off rivals, ethically and properly. For information, competitive strategy is narrower in scope than business strategy. This is because it focuses on management's plan to compete successfully. The four strategies are shown in the figure 1.2 in following.
Degree of product differentiationFigure 1.2 Five Generic Competitive Strategies
Scope of Business Activities
Source: Adopted from tutor2u.net
According to figure 1.2, low cost leadership striving to be the overall low-cost provider in industry. Besides, broad differentiation is striving to build customer loyalty by differentiating one's product offerings from rival's products. Low cost focus has to concentrating on a narrow buyer segment, out-competing rival on basic of lower costs. In addition, high differentiation is offering niche members a product or service customized to their needs. Some more, best cost provider strategy is striving to give customers more value for the money by combining an emphasis on low cost with an emphasis on upscale differentiation.
The organizations are care about the customers' needs and wants. Therefore, the organizations apply the competitive dimensions which are transformed such needs and wants into targeted areas. These competitive advantages are consisting of four factors which are cost, quality, time, and flexibility as defines as following.
Organization must make some kind of compromise between the cost and the characteristics of their products and services. Basically, most of organization will choose to control the cost of material and employee compensation rates attempt to achieve higher levels of productivity.
Quality can be achieved by adding unique attributes to products to enhance their competitive attractiveness so as to benefit customers in the final stage. Quality can be achieves in two ways which is quality of design and quality of conformity such capability of organization to transform inputs to conformable outputs.
Time is the most important factor to compete among each others. For example, delivery time can be a source of competitive advantages. This can be achieving through reducing the period f time between receiving and accepting customer orders and then delivers products or services to customers. Otherwise, the time period between product ideas generation till achieving the final design or production is consider as important factor.
Flexibility is defines as the ability of the processes to switch from one product to another or from one customer to another at least time and lowest cost or impact. Besides, flexibility also can view as the ability to adapt the production capacity to changes in the market demands.
RELATIONSHIPS BETWEEN SWOT ANALYSIS AND COMPETITIVE ADVANTAGE
It is not intelligent to think that using organizational strengths to build a competitive advantage does not require through external environment analysis. The fact is whether an organization is strong or weak is a relative measure with comparison to its external environment. It is widely proven that organizations can achieve a competitive advantage by relying on organizational strengths and interacting with the strategic choice so as to make use of opportunities and avoid threats or override weakness or both.
Strategy management is the process of specifying an organization's objectives, developing policies and plans to achieve these objectives, and allocating resources to implement the plans. It is the highest level of managerial activity, usually performed by the company's top management as well as executive team. It provides overall direction to the whole organization. An organization's strategy must be appropriate for its resources, circumstances, and objectives. The objective of an overall corporate strategy is to carry out its mission effectively and efficiently. A good corporate strategy should integrate an organization's goals, policies, and action sequences or tactics into cohesive whole.
Strategic planning was first brought into practice in the private sector in 1960-1970, followed by the public sector some 10-20 years later. According to Diskiene, Galiniene, and Marcinskas (2008), Strategic planning gives quite a clear description of the use of the SWOT strategy analysis tools. There are also involved several reasons of strategic plans fail where discuss in problem statement section.
SWOT analysis usually reflect a person's existing position and view point, which can misused to justify a previously decided course of action rather then used as a means to open up new possibilities. It is significant to mention that sometimes threat can also be view as opportunities, depending on the people or groups involved. Finding from Helms and Nixon (2010) clearly indicate that an optimist is one who sees an opportunity in every difficulty. Adversely, a pessimist is one who sees difficulty in every opportunity.
SWOTs can allow companies to take lazy course and took for fit rather than to stretch, they look for strengths that opportunities yet ignore the opportunities they do not feel they can use to their advantage. A more active approach would be to involve identifying the most attractive opportunities and then plan to stretch the company to meet these opportunities. This would make strategy a challenge to the organization rather than a fit between its existing strength and the opportunities (Helms & Nixon, 2010).
Helms and Nixon (2010) points out that categorization of variables into one of the four SWOT quadrants is also challenging. This is because if the strengths that are not maintained may become weaknesses. Some more, if opportunities not taken in the right time, but adopted by competitors, may become threats. Helms and Nixon (2010) also agrees there is confusing in classifying issues such often threat to a business can be called opportunities but setback and catastrophes are real problems and cannot be classified as opportunities. So the opportunities is a favorable solution to a problem and not problem itself. Besides, criteria to assign a variable to one of the four quadrants may be more difficult to clarity if the methodology is not used for a company but for a country.
While SWOT is useful to profile and enumerate issues, it does not provide actual strategies to implement to take advantages of opportunities while leveraging strengths. In short, it is no strategic direction provided. This is because SWOT is only using simple list of words or point form without clear detail may be difficult to interpret. The brief format of the SWOT tool may be an oversimplification of a business situation that is more complex. The SWOT tool does not represent the complete and entire analysis so it may lead to inaccurate results (Helms and Nixon, 2010).
Helms and Nixon (2010) states that SWOT is need to use with additional tools of analysis which is combinations with other strategic tools and models in order to get more accurate results. Many researchers suggest that Porter's 5-Forces Analysis is a well internal analysis which focuses on the organization's external environment. Hence, 5-Foces analysis is applied more specifically to an organization's competitive environment.
According to The Free Encyclopedia of Wikipedia (2010), strategic plans fail is consists of many reasons which can refer to the organization failure to understand the customers' wants and needs. Otherwise, organization inability to predict environmental reaction which what is the competitor recently doing. Besides, the organization also over-estimates the resource competence. This can be said that the organization is does not know whether the staff, equipment, and processes can handle the new strategy. In addition, the organization is failure to coordinate, failure to obtain senior management commitment, failure to obtain employee commitment and failure to follow the plain. Finally, the organization might under-estimate of time requirements.
In the business arena the grouping of internal and external issues is a frequent starting point for strategic planning. This is a most important starting point for implementing the SWOT analysis. If fail to categories or indentified it, then the whole analysis becomes less accurate for organization. In fact, the organization will lose the opportunities to compete in the market with the competitors. Therefore, the planner or top management have to identified the external and internal factors which strengths, weaknesses, opportunities, and threats carefully in order to getting accurate result.