SWOT Analysis: Chapter 12

SWOT analysis draws the critical strengths, weaknesses, opportunities, and threats (SWOT) from the strategic audit. The audit contains a wealth of data of differing importance and reliability. SWOT analysis distills these data to show the critical items from the internal and external audits. The number of items is small for forceful communications, and they show where a business should focus its attention.

Opportunities and Threats

Managers need to identify the main threats and opportunities that their company faces. The purpose of the analysis is to make the manager anticipate important developments that can have an impact on the firm. A large pet food division of a multinational company could list the following.

 

Opportunities:

• Economic climate. Because of improved economic conditions, pet ownership is increasing in almost all segments of the population.

• Demographic clarinet?. (1) Increasing single parenthood, dual-income families, and aging will increase the trend towards convenient pet foods (from wet to dry); and (2) the aged population will grow and increasingly keep pets as company.

• Market. The pet food market will follow the human market in the concern for healthy eating and pre-prepared luxury foods,

• Technology. New forms of pet food that are low in fat and calories, yet highly nutritious and tasty, will soon emerge. These products will appeal strongly to many of today's pet food buyers, whose health concerns extend to their pets.

Threats:

• Competitive activity. A large competitor has just announced that it will introduce a new premium pet food line, backed by n huge advertising and sales promotion blitz,

• (Channel pressure. Industry analysts predict that supermarket chain buyers will face more than 10,000 new grocery product introductions next year. The buyers accept only 38 percent of these new products and give each one only five months to prove itself,

• Demographic changes. Increasing single parenthood and dual-income families (1) will encourage the trend toward pets that needs little care (cats rather than dogs), and (2) will encourage the trend towards smaller pets who eat less.

• Politics. European Union legislation will force manufacturers to disclose the content of their pet food. This will adversely affect the attractiveness of some ingredients like kangaroo and horse meat.

The manager should then focus on the most probable and harmful threats and prepare plans in advance to meet them. Opportunities occur when an environmental trend plays to a company's strength. The manager should assess each opportunity according to its potential attractiveness and the company's probability of success. Companies can rarely find ideal opportunities that exactly fit their objectives and resources. The development of opportunities involves risks. When evaluating opportunities, the manager must decide whether the expected returns justify these risks. A trend or development can be a threat or an opportunity depending on a company's strengths. The development of the steel-braced radial tire was an opportunity for Miehchn, which used its technological lead to gain market share. To the rest of the industry, the new technology was a threat because the tire's longer 

life reduced total demand and the new technology made their plant obsolete.


What is marketing?
 

Strengths and Weaknesses

The strengths and weaknesses in the SWOT analysis do not list all features of a company, but only those relating to critical success factors. A list that is too long betrays a lack of focus and an inability to discriminate what is important. The strengths or weaknesses are relative, not absolute. It is nice to be good at something, but it can be a weakness if die competition is stronger, Mercedes is good at making reliable luxury cars with low depreciation, but this stopped being a strength when Honda's Acura and Toyota's Lexus beat Mercedes on all three fronts in the American market. The Japanese products were not cheap, but they were styled for the American market and came with all the extras that buyers of German luxury cars had to pay for. Finally, the strengths should be based on/act. In buying Skoda, VW has acquired a well-known brand name but is the name a strength A failure to understand true strengths can be dangerous. A well-known aircraft manufacturer for years promoted the quality of its after-sales service. Only after another company acquired it did it find out that its reputation was the worst in the industry.

A major pet food manufacturer could pitch the following strengths and weaknesses against the opportunities and threats,

Strengths:

• Market leader in the dry-eat food market.

• Access to the group's leading world position in food technology.

• Market leader in luxury pearl: foods.

• The group's excellent worldwide grocery distribution.

• Pet food market leader in several big markets, including France, Italy, Spain, and South America.

Weaknesses:

• Number three in the wet pet food market.

• Excessive product range with several low-volume brands.

• Most brand names are little known and are cluttered following acquisitions.

• Relatively low advertising and promotions budget.

• Product range needs many manufacturing skills.

• Poor store presence in several large markets: Germany, UK, USA, and Canada.

• Overall poor profits performance.

The pet food company shows how some parts of the SWOT balance. The strengths in dry and luxury pet foods match demographic trends, so this looks like an opportunity for growth. Access to food technology should also help the company face changing consumer tastes and legislation. The weaknesses suggest a need for more focus. Dropping some uneconomic lines in the mass wet pet food market, simplifying the brand structure, and concentrating on fewer manufacturing processes could release resources for developing the dry and luxury markets. By using its access to worldwide grocer;' distribution, the company could become profitable and focused.  

 

The Business Portfolio

The business portfolio is the collection of businesses and products that make up the company. It is a link between the overall strategy of a company and those of its parts. The best business portfolio is the one that fits the company's strengths and weaknesses to opportunities in the environment. The company must (]) analyze its current business portfolio and decide which businesses should receive more, less, or no investment, and (2) develop growth strategies for adding IKW products or businesses to the portfolio. 

Analyzing the Current Easiness Portfolio

Portfolio analysis helps managers evaluate the businesses making up the company. The company will want to put strong resources into its more profitable businesses and phase down or drop its weaker ones. Recently, Sweden's Volvo has started disposing of its non-core businesses to strengthen its portfolio. It plans to sell its interests in consumer products (holdings in BCP), Pharmaceuticals (28 percent of Pharmacia), stock brokering, property, and investment. The tighter portfolio will allow Volvo to concentrate on revitalizing its passenger car, truck, and bus operations.

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