What is SWOT Analysis?
It doesn’t need a marketing guru to tell you that a ‘strategic marketing plan’ should contain a mission statement, market overview, SWOT analysis, financial summary, marketing objectives and strategies and resources allocations. It is also essential to include all facts concerning details on time planning, cost forecast, and budget. Albert Humphrey led a research project at Stanford University in the 1960s to identify why corporate planning failed. The research identified the tool used to explore each of the critical areas and was called SOFT analysis. Humphrey and the original research team specified the categories: “What is good in the present is Satisfactory, good in the future is an Opportunity; bad in the present is a Fault, and bad in the future is a Threat.” Later Urick and Orr changed the F to W and it stuck like that.
Why do we perform SWOTs?
SWOT analysis maps the most important areas that influence SURVIVAL and PROSPERITY! Where the company is vulnerable and in what areas there is an opportunity to ‘value’. However, the truth is that most cases of SWOT analysis is NON SENSE! The threats of any company can be listed today without even knowing who they are! Competition, changing technology, regulators, deregulators, and the list goes on. In fact, the SWOT report of competing pharmaceuticals such as GSK and Pfizer is available on SwotandPestle.com and their analysis quadrants look quite similar.
SWOT is useless when….
Lack of a clear objective!
If SWOT analysis does not start with a clear objective, it runs the risk of failure. In 1997, Hill and Westbrook surveyed 50 UK companies to examine their strategy writing processes. The survey concluded that only 40% of companies carried out a SWOT analysis, and none of them used a SWOT analysis to inform strategy.
Making subjective assumptions on a marketing initiative!
For example, having a large network of warehouses is it a strength or a weakness? It depends, on the hypothesis! It can be a strength for a company like Amazon Prime, because it allows the company to get the products faster to their customers. Also, the high investment cost is an entry. On the other hand, operating and maintaining many warehouses substantially increases the company’s operating cost. However, if a competitor manages to deliver its products faster, with less warehouses and at a lower cost, then it is a weakness.
Challenging managerial exercise!
Conducting a meaningful SWOT analysis is a difficult managerial task. Certain key factors (like market growth, government economic policy and competitive activity) when analysed, cannot give accurate conclusions.
Fear leads to paralysis!
Business leaders try to resolve all weaknesses and eliminate all threats, identified into a SWOT Analysis. This is an impossible task, and eventually they come a dead end. This leads to fear, and fear leads to paralysis! It is important for a business leader to know the company weaknesses, fix the ones he/she can and move on!
A quantitative SWOT analysis helps define future efforts – products, projects, strategies, and actions. To achieve them, you need to consider the following:
Comprehensive market segmentation is essential, as today most products are considered of high standards. Profitable differentiation requires that SWOTs are performed on a specific segment with similar needs and product features. Otherwise, the product will end up in the ‘average’ score if the SWOT analysis was not performed on a segment containing similar products and similar needs. It should be different in every segment. According to Harvard Business review publication, 90% of 30.000 new product launches in the USA fail because of inadequate market segmentation.
Market segment attractiveness.
After segment identification, customer segments attractiveness must be evaluated. This factor may be determined by answering the following 5 points: Is the segment identifiable, reachable, substantial, responsive and profitable?
Proper market targeting & mapping.
It is vital for businesses to understand the flow of goods and services all the way to the final consumer. Also, the decision-makers need to be identified, and the key target markets need to be prioritized. Most companies respond to this question incorrectly with some kind of product! (IBM nearly bankrupted because they thought they were in the mainframe market, Kodak thought they were in the film market, and Nokia believed they were in the phone market.)
Develop and prioritize value proposition;
According to McKinsey, 70-80% of companies claim they value propositions, but only about 5% have them.
There are four components of a value proposition:
– Functional: improving productivity
– Reducing costs
– Avoiding costs
– Emotional: improving trust and reliability
The first three components can be easily explained to the customers and demonstrated in quantified financial terms. By employing the appropriate communication approach, companies can help customers clearly understand that the product’s new value proposition provides advantage as opposed to merely avoiding disadvantage.
The best approach for companies is to identify their customers, seek for ways to add value, and really understand the difference between creating advantages vs avoiding disadvantages. Companies must always seek to improve functionality, avoid costs and reduce costs. Companies like TESCO did not succeed based on price! They applied clever segmentation, wise marketing and made a real effort to get to know their customers better.
The prevalent instrument with respect to situation analysis for many decades has been SWOT analysis. Whether SWOT Analysis is proven to be applicable and effective, consensus dictates that It is crucial for understanding who we are, our competences and limitations, as well as how to utilize those to our of best benefits. It is wise for companies to revaluate periodically their business since strengths and opportunities can change over time. Also, a good approach will be to combine the SWOT analysis with other analytical tools (such as value chains, PESTLE, Porter’s five forces).