SWOT Analysis | What is SWOT Analysis? | Examples of SWOT Analysis
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SWOT analysis was originally conceived and developed in the 1960s and its basic organising principles have remained largely unchanged in the field of strategic management since that time (Kotler et al., 2013). It is, as Ghazinoory, Abdi and Azadegan-Mehr (2011) comment, a systematic framework which helps managers to develop their business strategies by appraising the internal and external determinants of their organisation’s performance. Internal environmental factors include leadership talent, human resource capabilities, the company’s culture as well as the effectiveness of its policies and procedures. In contrast, external factors include competition, government legislation, changing trends, and social expectations (Johnson, Scholes and Whittington, 2008).
The SWOT analysis framework involves analysing the strengths (S) and weaknesses (W) of the business’s internal factors, and the opportunities (O) and threats (T) of its external factors of performance (Ghazinoory, Abdi and Azadegan-Mehr, 2011). Through this analysis, the weaknesses and strengths within a company can correspond to the opportunities and threats in the business environment so that effective strategies can be developed (Helms and Nixon, 2010). It follows from this, therefore, that an organisation can derive an effective strategy by taking advantage of its opportunities by using its strengths and neutralise its threats by minimising the impact of its weaknesses. Moreover, SWOT analysis can be applied to both a whole company as well as a specific project within a company in order to identify new company strategies and appraise project feasibility.
Hollensen (2010) asserts that the strengths and weaknesses of a company relate to its internal elements such as resources, operational programmes and departments such as sales, marketing and distribution. More specifically, a strength is an advantageous – or even unique – skill, competency, product, or service that a business or project possesses that allows it to create competitive advantages. This may include abstract concepts, such as its possession of strong research and development capabilities. A weakness on the other hand is a strategic disadvantage, such as a skill that the business or project lacks which limits it and creates potential risks in negative economic conditions. Achieving a balance between such positives and negatives is therefore a necessary pre-requisite for any company and it is also imperative that a company continues to review its strengths and weaknesses to take account for changes in its internal environment (Kotler et al., 2013).
An opportunity is, as Henry (2011) comments, a desirable condition which can be exploited to consolidate and strengthen a strategic position. Examples of this phenomenon would include growing demand for a trendy new product which it could consider selling, such as that announced by Burger King relating to the introduction of a black cheeseburger (Molloy, 2014). A threat on the other hand, is a condition that creates uncertainties which could potentially damage an organisation’s performance or market share (Henry, 2011). Threats include the introduction of new competing products or services, foreign competition, technological advancements, and new regulations. Examples of the fear of such external factors can be noted in the comments of companies planning to relocate their headquarters and registration bases from Scotland to England in the event of a ‘yes’ vote in the Scottish referendum in September 2014 (Wright, Titcombe and Spence, 2014). Therefore, a company needs to develop strategies to overcome these threats in order to prevent the loss of its market share, reputation, or profit. It must be noted, however, that opportunities and threats exist in the environment and therefore are often beyond the control of the organisation – but they do offer suggestions for strategic direction. SWOT analysis, as a result, demands a great deal of research into an organisation’s present and future position (Johnson, Scholes and Whittington, 2008). The results of SWOT analysis provide a useful source of information from which an organisation can go on to develop policies and practices which allow it to build upon its strengths, diminish its weaknesses, seize its opportunities, and make contingency plans or measures to eradicate or curtail threats, as Kotler et al. (2013) observe.
SWOT analysis is widely used by managers because of its simplicity (Hollensen, 2010). It is used as a planning tool that can be adapted to a range of situations and projects. Whilst it is not the only technique available to managers, it can often be the most effective if used properly (Henry, 2011). The basis for a SWOT analysis is usually drawn from an audit review as well as from independently carried out interviews with staff and customers. Data is then analysed to arrive at a list of issues which can be categorised into strengths, weaknesses, opportunities, and threats. The key issues and company activities are then reassessed through protracted discussions between managers and reduced further to identify the most important issues and the potential impact that they could have on the organisation. If too many issues are included in the analysis, there will be a lack of focus in the development of a new company strategy and thus it is important to ensure that such discussions focus on a limited number of factors (Ghazinoory, Abdi and Azadegan-Mehr, 2011). Additionally, the issues considered should be made in view of customer opinions and perceptions, which would therefore require objectivity. Ideally, a company should carry out a SWOT analysis on a regular basis in order to assess its situation against its competitors in a constantly evolving market environment (Fernie and Moore, 2013). According to Stalk, Evans and Schulman (1992, p. 62), “the essence of strategy is not the structure of a company’s products and markets but the dynamics of its behaviour”.
It is also recommended that an organisation should develop and undertake SWOT analysis on its competitors so that it is able to take into account consumer perceptions and determinants of their buying behaviour. This is particularly the case with issues such as quality, in which perceptions may be more powerful than reality (Kaplan and Norton, 2008). In today’s highly competitive and fast changing market environment, managers may make a grave error when evaluating their company’s resources; that is, not to assess them relative to the competition (Kotler et al., 2013). A competitive analysis as part of the SWOT framework is always necessary in order to determine an organisation’s position in the wider market. Thus, for example, if a project or business strength is the amount of capital it has to invest in improved IT functionality, this may not be the case if its competitor is investing double this amount to improve its own IT functionality. Thus, it is no longer a strength but rather a weakness for the company. The same competitive analysis should also be taken into account when assessing opportunities and threats, as it depends on the relative situation of the competing businesses (Johnson, Scholes and Whittington, 2008).
McDonald (1989, p. 16) states that the “SWOT device… whilst potentially a very powerful, analytical device, is rarely used effectively”, and recommends using a summary from a marketing audit to arrive at a sound SWOT analysis; the analysis must be conducted rigorously so that it prioritises the issues of paramount importance. Further, McDonald suggests keeping it focused on critical factors only and to maintain a list of differential strengths and weaknesses in comparison to competitors, concentrating mainly on competitive advantages. Additionally, only critical external opportunities and threats should be listed with a focus on the real issues. Finally, according to McDonald (1989), the reader of the SWOT analysis should be left with the main issues encompassing the business to the extent that they are able to derive and develop marketing objectives from them. At the end of the analysis, the organisation is left with reasons behind their choices as well as their potential impacts, which provides them with a stronger basis from which to form future strategic decisions.
Example of a SWOT analysis of the McDonald’s Corporation
Strengths
| Weaknesses
|
Opportunities
| Threats
|
Strengths
Open door policy to the press
At times of wider national food scandals, for instance those related to BSE, McDonald’s operated an open door policy, allowing the press into a limited number its restaurants and suppliers (Vrontis and Pavlou, 2008). This was done as a deliberate measure to reassure the public of the safety of McDonald’s.
Ceres guidance and co-ordination, and active CSR
McDonald’s, as Valax (2012) notes, co-ordinates with employees, investors, environmental and corporate social responsibility (CSR) organisations, such as Ceres, to improve its social and environmental programmes. As a result of such policies, McDonald’s can be seen to be continually updating its profile to take account of changes in consumer preferences – keeping the firm relevant and allied to the desires of its customers.
Selective supply chain strategy
McDonald’s works to ensure that its suppliers meet or exceed safety and quality standards as well as complying with best practice with reference to a sustainable food supply and animal welfare (Deng, 2009). Indeed, its recent advertisement campaigns have laid a premium on the traceability of products used.
Rigorous food safety standards
McDonald’s, as Vrontis and Pavlou (2008) observe, works hard to ensure that high food safety standards are met through training, food, safety and quality and menu development in each restaurant. This filters through to its partners, ensuring that they operate ethically and meet social responsibility standards. The high training required can also be noted by reference to its endorsement of specific qualifications and training for staff – thereby adding value to its workforce (Valax, 2012).
Affordable prices and high quality products
McDonald’s is an efficient provider of high quality foodstuffs and always seeks to offer the best value to its customers, as noted by its 99p ‘value’ range (Harnack et al., 2008).
Nutritional information available on packaging
McDonald’s was one of the first fast food restaurants to disclose nutritional information on its packaging and continues to seek new ways in which it can provide nutrition and balanced active lifestyles for its customers (Harnack et al., 2008). Indeed, there are sections of the corporate website specifically tailored to this data.
Decentralised yet connected system
McDonald’s provides a core system of values, principles and standards which managers adhere to in combination with its “Freedom within the Framework” programme, which provides them with the flexibility to respond to the diversity of its customers and local markets (McDonald’s Corporation, 2013).
Innovative excellence programme
McDonald’s employs an array of mystery shoppers who visit premises pretending to be customers. They inspect the premises as customers and rate them accordingly. Many restaurants provide customer comment contact numbers and employee satisfaction surveys. It may also be noted, though anecdotally, that the firm responds quickly to mistakes and problems raised with area managers.
Promoting ethical conduct
McDonald’s works hard to maintain its integrity with its shareholders through open channels of communication (McDonald’s, 2013).
Profitable
McDonald’s is profitable, as Wallop (2014) comments, with sufficient capital. This allows it to grow and realise gains on its investments. Thus, McDonald’s is able to offer help to charities as well as itself when in need.
McDonald’s is profitable, as Wallop (2014) comments, with sufficient capital. This allows it to grow and realise gains on its investments. Thus, McDonald’s is able to offer help to charities as well as itself when in need.
Weaknesses
Inflexible to changes in market trends
If customer trends move towards eating in a more eco-friendly or organically-oriented manner, McDonald’s would be unable to follow this trend without changing suppliers and incurring significant financial losses (Wallop, 2014). McDonald’s could consider the introduction of new products with the aid of market research, in coming years, to prepare them for such potential change.
Difficult to find and retain employees
McDonald’s has had hostile relationships with unions and, although this has been controlled, the company does find it difficult to find and retain good employees (Valax, 2012). The company can build on its reputation for developing top level managers by further increasing its graduate recruitment portfolio.
Drive for achieving shareholder value may counter CSR
When McDonald’s profits fall, its stock price often falls as well; as a consequence, it is often forced to take drastic action to resolve the problem. (Wallop, 2014) This often relates to issues of social and environmental responsibility. McDonald’s could be more proactive in finding more long-term CSR suppliers and processes that provide lower costs and higher profit margins, rather than being reactive.
Promotion of unhealthy food
Despite providing healthier product varieties, McDonald’s continues to sell burgers that have 850 calories in them. . This could continue to harm its reputation as an unhealthy fast food provider. McDonald’s could research ways to reduce the calories in its products whilst still maintaining their taste, or at the least provide low calorie burger options. Much progress has been made in this arena – but it is suggested that more needs to be done (Harnack et al., 2008).
Promoted CSR meat imports in error
Promoted CSR meat imports in error
McDonald’s claimed to provide meat from socially and environmentally responsible sources, but a court case found that meat had been imported from Latin America, where rainforests were cleared to create green fields for cattle (Deng, 2009). Where McDonald’s carries out CSR processes or investments, it may wish to consider carrying out random checks to ensure their standards are continually met, to minimise embarrassing press.
Opportunities
Attractive and flexible employment
McDonald’s offers a variety of job opportunities and is proud to say that 42% of its top managers first started by serving customers (McDonalds, 2013). That the company offers a selection of different shift patterns as well as employee benefits can be seen as further reasons as to why McDonald’s attracts employees.
Positive environmental commitments
McDonald’s incorporates environmental commitments in its daily operations, from the use of environmentally friendly products in maintaining daily ‘drive-thru’ cleaning, to providing sustainable fish sources, to using recycled packaging (McDonald’s, 2013). It was also a pioneer of using bio-diesel and recycling fat from its fryers into a form of fuel.
Higher standards demanded from suppliers
McDonald’s sets the standards it demands from suppliers for low cost high quality, socially responsible supplies, in return for a long-term business commitment (Yuece, 2012).
Corporate Responsibility Committee
McDonald’s has a standing Corporate Responsibility Committee that acts as an advisor to its Board of Directors (McDonald’s, 2013).
Honest and real brand image
McDonald’s has built and maintains a trusting relationship with its shareholders and customers through truthful marketing and communications (Harnack et al., 2008).
Threats
Fabricated stories about the quality of chicken
Emails and websites have published fabricated information that McDonald’s is using ‘monster-chickens’ in its products. McDonald’s could build on its open door policy with the press and apply it to the web, to combat false distribution of information (Kaplan and Norton, 2008).
Unhealthy foods for children
If competitors begin to offer premium healthy alternatives for children with small gifts to encourage them to eat healthy, this would be a significant threat to McDonald’s (Kotler et al., 2013). McDonald’s positive strategy to provide a range of healthy products could include further healthy products for children in addition to its present offering of carrot sticks.
Health concerns surrounding beef, poultry, and fish
There are various initiatives working against hormone induced cows and other issues such as bird flu epidemics and heavy metal levels in fish that could reduce McDonald’s sales and cause profits and its share price to fall (Johnson, Scholes and Whittington, 2008). McDonald’s could use its purchasing power to its advantage to source supplies that have proven health benefits. McDonald’s greater work with local farmers in the UK with regard to the sourcing of beef and eggs can be seen as a step in the right direction in this regard.
Labour exploitation in China
Chinese manufacturers exploit labour in their production of ‘Happy Meal’ toys (Valax, 2012). McDonald’s could use its purchasing power to its advantage to demand that manufacturers provide toys without exploiting labour.
CSR at the risk of profit loss
If share prices and profitability are under pressure, managers will inevitably seek to resolve it at the risk of a CSR issue (Ceres, n.d.).
Contributor to global warming
McDonald’s is the largest consumer of beef in the world. Greenfields used to supply this beef comes at the expense of rainforests, heavy use of chemicals, fertilisers and pesticides (Ceres, n.d.). McDonald’s could use its purchasing power to its advantage to source CSR suppliers.
Local fast food restaurants
Local restaurants which are less environmentally threatening than McDonald’s and have less purchasing power may have better reputations with local suppliers and customers (Wallop, 2014).
Political instability
Political instability can be a threat to the secure and continued operation of a business. Even if local staff are employed, a tense political situation can cause areas of operation to be closed, in the short- or long-term. An example of this relates to McDonald’s in the Crimea and in Russia; for the foreseeable future, McDonald’s restaurants are closed in the Crimea as a result of the Russian invasion. In retaliation, Russia has temporarily closed a number of McDonald’s restaurants in Russia (Wallop, 2014).
From the above SWOT of McDonald’s and the summary that follows it, it can be seen how, by highlighting its position, an organisation can identify areas that could be strengthened, seize opportunities, minimise threats and diminish or eliminate weaknesses.
In summary, a SWOT analysis provides a systematic framework for appraising an organisation’s internal and external position. It is a useful tool but it must be constantly updated to enable the company to keep abreast of developments and change its strategies accordingly. Whilst it may be difficult for management to resolve all of the weaknesses and threats highlighted, the company is at least made aware of them through the conducting of a SWOT analysis and can refer to them when implementing future strategies. The McDonald’s SWOT analysis case study highlighted several CSR threats and weaknesses whilst simultaneously highlighting strengths, such as its strong purchasing power which could potentially be used to demand more socially responsible production techniques from its Chinese manufacturers and meat suppliers. It also showed how a more proactive and longer-term approach to its strategies can help it to anticipate changing consumer tastes and demands (Yuece, 2012).
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