Page 84 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes 2. Threats: A threat is a major unfavourable situation in a firm’s environment. Examples
include increase in competition; slow market growth, increased power of buyers or
suppliers, changes in regulations etc. These forces pose serious threats to a company
because they may cause lower sales, higher cost of operations, higher cost of capital,
inability to make break-even, shrinking margins or profitability etc. Your competitor’s
opportunity may well be a threat to you.
3. Strengths: Strength is something a company possesses or is good at doing. Examples
include a skill, valuable assets, alliances or cooperative ventures, experienced sales force,
easy access to raw materials, brand reputation etc. Strengths are not a growing market,
new products, etc.

4. Weaknesses: A weakness is something a company lacks or does poorly. Examples include
lack of skills or expertise, deficiencies in assets, inferior capabilities in functional areas etc.
Though weaknesses are often seen as the logical ‘inverse’ of the company’s threats, the
company’s lack of strength in a particular area or market is not necessarily a relative
weakness because competitors may also lack this particular strength.

5.2.1 Carrying out SWOT Analysis

The first thing that a SWOT analysis does is to evaluate the strengths and weaknesses in terms of
skills, resources and competencies. The analyst then should see whether the internal capabilities
match with the demands of the key success factors. The job of a strategist is to capitalize on the
organisation’s strengths while minimizing the effects of its weaknesses in order to take advantage
of opportunities and overcome threats in the environment. SWOT analysis for a typical firm is
given below (Table 5.1).

5.2.2 Steps in SWOT Analysis

The three important steps in SWOT analysis are:

1. Identification
2. Conclusion
3. Translation
1. Identification:
(a) Identify company resource strengths and competitive capabilities

(b) Identify company resource weaknesses and competitive deficiencies
(c) Identify company’s opportunities
(d) Identify external threats

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