SWOT and PEST analysis

This paper looks at the popular SWOT analysis (strengths, weaknesses, opportunities and threats) as a part of the Current Situation Analysis part of the Strategic Planning Process. It examines what each of the factors represent, how they are analysed and assessed to allow the strategic marketing planner to decide which strategies and tactics will be most appropriate.

Ways for completing SWOT analysis are examined, as are the various analysis or ranking systems.

PEST/STEEP analysis is also included

Contents:

1 A Swot. The terms:

2 What is SWOT analysis?

3 What is PEST analysis?

4. What is a STEEP analysis?

5 How often should a business conduct SWOT analyses?

6 Is SWOT analysis useful for all businesses regardless of size and market position?

7 Where is SWOT analysis placed in the business or marketing plan?

9 What are the three main methods of conducting a SWOT analysis?

10 Factors used to identify strengths and weaknesses

11 How can strengths and weaknesses be measured?

12 Factors used to identify opportunities and threats

13 Different methods of ranking opportunities and threats.

14 Why should you apply a ranking to strengths and weaknesses, and to opportunities and threats?

15 How does the marketing planner use the results of a SWOT analysis?

1  A Swot.  The terms:

Strengths

Weaknesses

Opportunities

Threats.

Strengths are factors, or core competencies, which will:

•  help make use of opportunities,

•  contribute to the achievement objectives,

•  lessen the impact of threats or remove them completely.

Weaknesses are factors, which will:

•  lessen the ability to pursue opportunities,

•  reduce the ability to achieve objectives,

•  allow threats to have an impact or allow them to occur.

Opportunities are factors that will:

•  Allow you to reduce costs or gain greater control over your inputs. This may be achieved through better sourcing of supplies, improved negotiation, or backward integration, among other factors.

•  Allow you to improve your processes e.g. through better technology, or increasing your customer base through new market opportunities, leading to internal cost efficiencies.

•  Allow you to increase the volume and variety of your outputs, i.e. sales volume, e.g. through the identification of new market segments, new or unmet needs, or the deterioration of a competitor.

Threats are factors that will:

•  Cause you to increase costs or lose control over your inputs. This may be caused by natural disasters reducing supplies, increased competition for supply materials from new and/or better resourced competitors, or competitors establishing strategic alliances or backward integration with prominent or important suppliers.

•  Cause a reduction in the effectiveness of your processes e.g. new or better-resourced competitors targeting your customers may result in loss of customers leading to a reduction in internal cost economies due to decreased production volume. Competitors may also target your key staff/management.

•  Cause a reduction in the volume of your outputs, e.g. through sabotage or natural disasters (your warehouse may burn down so you have a considerable delay in providing stock to customers), or changes in taste/needs of your market which will result in a decline in sales

2  What is SWOT analysis?

SWOT analysis is a systematic and detailed examination of all internal and external factors that may affect a business, at any specific point in time.

SWOT analysis is an essential part of the Current Situation Analysis, and should provide the basis for strategy selection and development. SWOT analyses should be done for each area of the business as well as for the business as a whole.

SWOT analysis should be a relative and comparative analysis. Strengths and weaknesses use direct competitors as the comparison base. Alternatively, industry specific benchmarking is often used as the comparison base. Opportunities and threats are compared to each other against the impact they will have on objectives

3  What is PEST analysis?

PEST analysis is a structural method which can be used for identifying opportunities and threats.

Political (and legal) Factors

Economic Factors

Sociocultural Factors

Technological Factors

PEST analysis incorporates Demographic forces into Sociocultural forces, and Natural forces into the Technological category, as these forces tend to be interconnected and inter-dependent.

4. What is a STEEP analysis?

Originally developed by Brian Monger, STEEP is an advanced form of PEST analysis as it also includes the physical Environment.

Political (and legal) Factors

Economic Factors

Sociocultural Factors

Technological Factors

Plus

Environmental Factors

5  How often should a business conduct SWOT analyses?

There is no specific timing for carrying out or revising a SWOT. Generally, a complete SWOT should be performed as an integral part of any planning process, and revisions should be carried out as specific circumstances change within the planning period, or at reasonably spaced and regular intervals. For example, when done as part of a 12-month marketing plan, the review of SWOT factors should probably be carried out every 3–4 months, unless significant factors either inside or outside the marketing group change within the 3–4 month period.

6  Is SWOT analysis useful for all businesses regardless of size and market position?

Yes, as all businesses should be aware of their relative strengths and weaknesses, and without it, may not become aware of opportunities and threats until it is ‘too late’.

SWOT analysis should be used by all businesses, regardless of the size, and also by all levels and product/business activity groups within an organisation.

7  Where is SWOT analysis placed in the business or marketing plan?

SWOT analysis is an essential part of the Current Situation Analysis, and should provide the basis for strategy selection and development. It is recommended that the full ranked lists that compose the SWOT be placed as an Appendix to the marketing plan. The main issues that are relevant to the particular planning period can then be extracted and discusses in the Situation Analysis and Key Issues and Objectives parts of the plan.

8  Are strengths and weaknesses absolute or comparative?

They are comparative – i.e. a business should compare its self against competitors and/or best industry practices or benchmarks.

For a factor to be considered a strength, the business must ‘do it better’ than its competitors. In business, being good at something is only useful if it allows you to gain market share, sales or profit.

For a factor to be considered a weaknesses, the business must ‘do it less well’ than its competitors in an area which is important to its customers, or to the efficient running of the business.

If two competitors have the same level of strength, there is no advantage for either. If they have the same level of weakness, there is no disadvantage for either. Customers can equally choose between the two.

9  What are the three main methods of conducting SWOT  analyses?

a  What are the advantages of each type?

b  What are the disadvantages of each type?

c  What would determine the best type to use for any business?

The three main methods of conducting SWOT Analyses are:

The Individual Planner Method (IMP). The individual planner  can list all strengths, weaknesses, opportunities and threats to his/her part of the business, analyse them and develop strategies accordingly.

Advantages

•  This method is relatively quick, as only one person is involved.

•  It is also the cheapest, as only one person’s time is being used.

•  If ‘IMP’ has an excellent understanding of the market and the business, the results should be reasonable to good.

•  It may be the only option for smaller businesses due to manpower constraints.

Disadvantages

•  As there is only one person involved, there is only one point of view, which could conceal some factors and skew the importance of others.

•  Unless ‘IMP’ is very honest, there is likely to be considerable bias in the rankings.

•  If ‘IMP’ doesn’t have an excellent understanding of the business, the results are unlikely to be satisfactory.

Brainstorming Method.

Selected managers and key staff can participate in a brainstorming type session to identify and rate all factors, which are then developed into strategies and tactics by the planner.

Advantages

•  A variety of different viewpoints is available.

•  As in-house staff/management are involved, it should be reasonably quick and cost effective, although it may require at least a day to complete.

Disadvantages

•  This method needs to be well managed to keep the attendees focused – it is not unknown for such meetings to result in a lot of words but not much substance.

•  Strong personalities, or the fear of being seen to be critical of the company (or management) may reduce the effectiveness and honesty of some participants, particularly where weaknesses and threats are concerned.

•  Like most activities undertaken by a group, agreement may never be reached.

The In-House Research Exercise Method.

The planner can conduct an in-house research exercise where key management, staff, and possibly selected suppliers, customers and distributors are asked to rate the business or SBU on a range of pre-identified factors. The planner uses the results to develop strategies and tactics.

Advantages

•  If responses are kept confidential they are likely to be more honest.

•  A variety of viewpoints will give a more rounded perspective of the company, particularly if people outside the company are included.

Disadvantages

•  This is probably the most time consuming method, as delays in receiving responses may occur, particularly if respondents are at remote locations.

•  Different respondents completing the survey may not be fully aware of how the company compares to competitors on all factors e.g. production management and staff may not be aware of financial or sales personnel comparisons.

•  The respondents may not be fully aware of the relationship of factors to objectives.

Factors such as the size of the business, planning staff expertise, and time and resource constraints will probably decide which method is used.

10  Factors used to identify strengths and weaknesses

Strengths and weaknesses are internal factors that will have an impact on a business’s ability to achieve its objectives. They can come from any part of the business’s operations, and can be grouped as follows:

•  management capabilities

•  human resources

•  financial factors

•  production factors

•  marketing capabilities

11  How can strengths and weaknesses be measured?

Strengths can be ranked using :

•  Performance – major, minor, neutral; and Importance – high, medium and low

•  A – highly important, B – somewhat important, or C – interesting but not necessarily useful

•  A comparison performance rating system, where each factor is given a weight (importance scale) and each competitor is rated on each factor (1–5 scale). An overall score is calculated by multiplying the weight and rate

•  Distinctive strengths, Not really a distinctive strength, but may develop, Definitely not a distinctive strength

Weaknesses can be ranked using:

•  Performance – minor weakness and major weakness; and Importance – high, medium and low.

•  A – highly important, B – somewhat important, C – interesting but not necessarily useful

•  Symptomatic weakness – not very serious in themselves, but are often symptoms of a more serious problem, Hygiene weaknesses – factors fundamental to good business that the business is not doing well, and Structural weaknesses – lack of a distinctive competence

12  Factors used to identify opportunities and threats

Opportunities and Threats are external factors that will help or hinder the business in the pursuit of its objectives and are relevant to the specific objectives. They can come from any part of:

•  the macro-environment

•  the external micro-environment.

13  Different methods of ranking opportunities and threats.

•  A  four-quadrant grid for using the criteria of Impact and Immediacy both opportunities and threats

•  Ranking: A – highly important, B – somewhat important, C – interesting but not necessarily useful

•  Opportunities as

–  Current Portfolio – can the organisation enter almost immediately with some re-configuration? and

–  Future Portfolio – could this area be entered in the future provided it developed towards this objective?

•  Threats as

–  Short Term

–  Medium

–  Long Term

14  Why should you apply a ranking to strengths and weaknesses, and to opportunities and threats?

Ranking adds focus and structure to the SWOT Analysis, and makes the subsequent identification and development of strategies easier and more logical. Strengths and weaknesses will have different levels of importance and ability to achieve objectives. If none is used, the strengths and weaknesses merely become a list of factors, which gives no help in strategy identification and development.

Not all factors identified as opportunities or threats will have the same impact and require the same level of attention. In order to make strategically suitable decisions, the marketing/business planner needs to know

•  which opportunities will result in the best outcomes given the planning objectives, and should therefore be given priority, and

•  which threats will have the most serious and/or immediate impact, and therefore need to be reduced, side-stepped or avoided if objectives are to be achieved.

15  How does the marketing planner use the results of a SWOT analysis?

Once all factors are identified and ranked, the planner can begin to see what aspects need to be addresses in the short, medium and long term.

Opportunities and Threats should be connected wherever possible to Strengths and Weaknesses. The planner can then decide what internal activities need to be undertaken to address the relevant external factors.

Activities can then be arranged into logical groupings e.g. each opportunity with the activities necessary for each of the 4 Ps being identified.

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