Strategy Formulation

SWOT analysis TOWS Matrix

Prof. Rushen Chahal

Comprehensive Strategy-Formulation Framework

Stage 1: The Input Stage

Stage 2: The Matching Stage

Stage 3: The Decision Stage

Strategy-Formulation Analytical Framework

Internal Factor Evaluation Matrix (IFSA)

Stage 1: The Input Stage

External Factor Evaluation Matrix (EFSA)

Strategic Factor Analysis Summary (SFAS) Matrix

The SWOT analysis

y

SWOT analysis should not only result in identification of corporations distinctive competencies but also in the identification of opportunities that the firm is not currently able to take advantage of due to a lack of appropriate resources.

The SWOT matrix

STRENGTHS WEAKNESSES

OPPORTUNITIES

THREATS

The SWOT analysis

STRENGTHS
Advantages of proposition? Capabilities? Competitive advantages? USP's (unique selling points)? Resources, Assets, People? Experience, knowledge, data? Financial reserves, likely returns? Marketing - reach, distribution, awareness? Innovative aspects? Location and geographical? Price, value, quality? Accreditations, qualifications, certifications? Processes, systems, IT, communications? Cultural, attitudinal, behavioral? Management cover, succession?

WEAKNESSES
Disadvantages of proposition? Gaps in capabilities? Lack of competitive strength? Reputation, presence and reach? Financials? Own known vulnerabilities? Timescales, deadlines and pressures? Cashflow, start-up cash-drain? Continuity, supply chain robustness? Effects on core activities, distraction? Reliability of data, plan predictability? Morale, commitment, leadership? Accreditations, etc? Processes and systems, etc? Management cover, succession?

The SWOT analysis

OPPORTUNITIES
Market developments? Competitors' vulnerabilities? Industry or lifestyle trends? Technology development and innovation? Global influences? New markets, vertical, horizontal? Niche target markets? Geographical, export, import? New USP's? Tactics - surprise, major contracts, etc? Business and product development? Information and research? Partnerships, agencies, distribution? Volumes, production, economies? Seasonal, weather, fashion influences?

THREATS
Political effects? Legislative effects? Environmental effects? IT developments? Competitor intentions - various? Market demand? New technologies, services, ideas? Vital contracts and partners? Sustaining internal capabilities? Obstacles faced? Insurmountable weaknesses? Loss of key staff? Sustainable financial backing? Economy - home, abroad? Seasonality, weather effects?

The SWOT analysis

The essence of strategy is opportunity divided by capacity
y

An opportunity by itself has no real value unless a company has the capacity (resources) to take advantage of that opportunity Weaknesses in other resource areas can prevent a strategy from being successful.

SA=O/(S-W)

Criticism of the SWOT analysis

y y y y y y y

It generates lengthy lists It uses no weights to reflect priorities It uses ambiguous words and phrases The same factor can be placed in 2 categories There is no obligation to verify opinions with data or analysis It requires only a single level of analyses There is no logical link to strategy implementation

SFAS matrix
y

Strategic Factor Analysis Summary (SFAS) matrix includes only the most important factors gathered from environmental scanning thus provides info essential for strategy formulation. The use of EFAS and IFAS tables together with SFAS matrix deal with many of the criticism of SWOT analysis.

Propitious niche
y

The goal is to find a propitious niche that is so well suited to the firms internal and external environment that other corporations are not likely to challenge or dislodge it.
Look for a strategic window a unique market opportunity that is available only for a particular time. Occupy a propitious niche and discourage competition. Identify a market opportunity in which the firm can obtain and keep dominant market share. Niche can change faster than a firm can adapt to that change thus the firm need to invest heavily in their capabilities to keep strong in a changing niche.

1. 2. 3. 4.

Propitious niche can disappear because of:

y
1. 2.

The environment/industry changes

The market gets smaller because of factors beyond the control of the company/SBU. The company/SBU, through its own efforts, not only fills a demand but actually causes the market to expand.

y
1. 2.

The company/SBU changes

Due to demands for resources elsewhere in the corporation, the company/SBU may be forced to cut back its activities. Its own success in the niche may cause the company/SBU to move into nearby niches.

The TOWS matrix

y

SWOT can be also used to generate a number of possible alternative strategies. The TOWS Matrix illustrates how the external opportunities and threats facing a corporation can be matched with the companys internal strengths and weaknesses to result in four sets of possible strategic alternatives.

SO Strategies
Strengths Weaknesses Opportunities Threats SWOT

SO Strategies

Use a firms internal strengths to take advantage of external opportunities

WO Strategies
Strengths Weaknesses Opportunities Threats SWOT

WO Strategies

Improving internal weaknesses by taking advantage of external opportunities

ST Strategies
Strengths Weaknesses Opportunities Threats SWOT
Use a firms strengths to avoid or reduce the impact of external threats

ST Strategies

WT Strategies
Strengths Weaknesses Opportunities Threats SWOT
Defensive tactics aimed at reducing internal weaknesses & avoiding environmental threats

WT Strategies

TOWS Matrix
Strengths S
List Strengths

Weaknesses W
List Weaknesses

Opportunities O
List 5-10 Opportunities

SO Strategies
Use strengths to take advantage of opportunities

WO Strategies
Overcoming weaknesses by taking advantage of opportunities

Threats T
List 5-10 Threats

ST Strategies
Use strengths to avoid threats

WT Strategies
Minimize weaknesses and avoid threats

Strengths S
TOWS Matrix for Maytag Corporation
Quality Maytag Culture Experienced Top Manag-t Vertical Integration Employee Relation Hoovers international orientation

Weaknesses W
Process-oriented R&D Distribution channels Financial position Global positioning Manufacturing facilities

Opportunities O
Economic integration of European Community Demographic favor quality Economic devel-t of Asia Opening of Eastern Europe Trend toward super stores

SO Strategies
Use worldwide Hoover distribution channels to sell both Hoover & Maytag major products. Find joint venture partners in Eastern Europe and Asia

WO Strategies
Expand Hoovers presence in ci

Treats T
Increasing government regulation Strong U.S. competition Whirlpool & Electrolux positioned for global economy New products advances Japanese appliance companies

ST Strategies
Use strengths to avoid threats

WT Strategies
Minimize weaknesses and avoid threats