SWOT ANALYSIS

A SWOT Analysis is a strategic management tool that assists an enterprise in

discerning their internal Strengths, and Weaknesses, and external Opportunities, and
Threats, to determine its competitive position in the market.
 Strengths: The strengths of a company are the core competencies, in which the
business has an edge over its competitors. It covers aspects such as:
 Strong financial condition
 A large customer bases and Strong brand name or a unique product
 Latest technology or patents
 Influential advertising and promotion.
 Cost Advantage and Quality in product and customer service.

 Weaknesses: Weaknesses can be described as the areas of limitations of the

business, that hinders the growth of the company and even leads to a strategic
disadvantage. These are the areas which need improvement to perform
competitively. It encompasses:
 Obsolete facilities and outdated technology.
 The unit cost of a product is higher than the competitors.
 No or less internal control.
 Less quality in products and services offered.
 Weak brand image.
 Financial condition is not very sound.

 Opportunities: Opportunities can be understood as the condition, which is

favourable or beneficial to the organization in the business environment, that the
business could exploit to gain an advantage. These are:
 Looking for areas of development, by utilizing skills and technology to enter
new markets
 Adding new products to the existing product line to increase customer base.
 Forward and backward integration.
 Acquiring rivals’ businesses.
 Joint ventures, mergers and alliances to increase market coverage.

 Threats: Threat implies an adverse condition which can lead the business
enterprise to losses, and can also harm the overall position and reputation of the
enterprise. It entails:
 A downtrend in market growth and New regulatory requirements
 A new entrant to the market and Substitute products that can decrease sales.
 Increasing the bargaining power of customers and suppliers.
 Changes in a demographic environment that will decrease demand for firm’s
product.
STEPS TO CONDUCT SWOT ANALYSIS:

 Step 1: Analysis of external environment:

 Identify the key factors that are most likely to affect the organization.
 Monitor information on the environmental forces.
 Select the methods to be used in forecasting these forces.
 Isolate the marketplace chances on the origin of the forecasts of these
forces.
 Identify the threats to the organization’s future profitability.

 Step 2:  Industry and Competitive Analysis:

 Examine the landscape of struggle.
 Study the business construction.
 Identify and analyse individual competitors.
 Identify the key industry-related opportunities and threats.

 Step 3: Identification of Opportunities and Threats:

 To ensure that information derived from environmental scanning is
summarized and analysed
 To determine what characterize these threats and threats.
 Categorize the environmental factors in terms of opportunity potential
and threat potential.
 Then management should summarize the emerging implications for
future organizational direction.
 Step 4:  Internal Environmental Analysis
 Recognize the areas for scrutiny (for instance product position, financial
position, etc.)
 Evaluate the strengths and weaknesses for their strategy-making
implications.
 Detecting association’s inner resource and strengths abilities.
 Examine each of the nominated zones.
 Identifying the organization’s internal weaknesses and resources
deficiencies

 Step 5: Identification Internal Strengths and Weaknesses

 The basis for identification of strengths and weaknesses of your
organization.
 The skills and capabilities which are likely to serve as enablers for
strategy formulation and implementation are to be listed as strengths.
 Those which are not enablers should be listed as the weakness.

 Step 6: Concluding SWOT Analysis:

 Assess the attractiveness of an organization’s situation on the basis of
identified strengths, weaknesses, opportunities and threats.
 Draw conclusion regarding the need for strategic action.

WHEN TO USE SWOT ANALYSIS:

A SWOT analysis can be used to:

 Explore new solutions to problems 

 Identify barriers that will limit goals/objectives 
 Decide on direction that will be most effective 
 Reveal possibilities and limitations for change
 To revise plans to best navigate systems, communities, and organizations
 As a brainstorming and recording device as a means of communication
 To enhance "credibility of interpretation" to be used in presentation to
leaders or key supporters.
IMPORTANCE OF SWOT ANALYSIS:
 Logical framework of analysis: SWOT Analysis equips the management
with an insightful framework for eliminating issues in a systematic manner,
that can influence the condition of business, formulation of various
strategies and their selection.
 Presents a comparative report: The analysis facilitates in presenting
systematic information about the internal and external environment. This
helps in making a comparison of external opportunities and threats with
internal strengths and weaknesses, as well as reconciling the internal and
external business environment, to help the managers in choosing the best
strategy, by considering various patterns.
 Strategy Identification: Every organization has its strengths weakness,
opportunities and threats. So, the SWOT Analysis acts as a guide to the
strategist to reckon the exact position, i.e. where the business stands, so as
to identify the primary objective of the strategy under consideration.

BENEFITS:

 Simple to do and practical to use;

 Clear to understand;
 Focuses on the key internal and external factors affecting the
company;
 Helps to identify future goals;
 Initiates further analysis.

LIMITATIONS:
Although there are clear benefits of doing the analysis, many managers and
academics heavily criticize or don’t even recognize it as a serious
tool. According to many, it is a ‘low-grade’ analysis. Here are the main flaws
identified by a research:

 Excessive lists of strengths, weaknesses, opportunities and threats;

 No prioritization of factors;
 Factors are described too broadly;
 Factors are often opinions not facts;
 No recognized method to distinguish between strengths and
weaknesses, opportunities and threats.
 EXAMPLES:
SWOT ANALYSIS AT 2015

SWOT ANALYSIS AT 2019

 BCG MATRIX

BCG Matrix is a simple tool and you basically need accurate calculations on
the market share and growth rate of your products, service or investment. While
it is easier to assess market growth, what is important is to objectively derive at
the market share data.

The Boston Consulting group’s product portfolio matrix (BCG matrix) is

designed to help with long-term strategic planning, to help a business consider
growth opportunities by reviewing its portfolio of products to decide where to
invest, to discontinue or develop products. It is also known as
the Growth/Share Matrix.

Placing products in the BCG matrix results in 4 categories in a portfolio

of a company:
 Stars (high growth, high market share)
 use large amounts of cash and are leaders in the business so they
should also generate large amounts of cash.
 frequently roughly in balance on net cash flow. However, if
needed any attempt should be made to hold share, because the
rewards will be a cash cow if market share is kept.
 Cash Cows (low growth, high market share)
 profits and cash generation should be high, and because of the low
growth, investments needed should be low.
 Keep profits high and Foundation of a company
 Dogs (low growth, low market share)
 avoid and minimize the number of dogs in a company.
 beware of expensive 'turn around plans'.
 deliver cash, otherwise liquidate
 Question Marks (high growth, low market share)
 have the worst cash characteristics of all, because high demands and
low returns due to low market share
 if nothing is done to change the market share, question marks will
simply absorb great amounts of cash and later, as the growth stops, a
dog.
 either invest heavily or sell off or invest nothing and generate
whatever cash it can. increase market share or deliver cash
STEPS TO CONDUCT BCG MATRIX:
 Step 1: Choose the product:
BCG matrix can be used to analyse Business Units, separate brands, products
or a firm as a unit itself. The choice of the unit impacts the whole analysis.
Therefore, defining the unit is necessary.

 Step 2: Define the market

An incorrectly defined market can lead to a poor classification of products. For
example, if we would do the analysis for the Daimler’s Mercedes-Benz car
brand in the passenger vehicle market it would end up as a but it would be a
cash cow in the luxury car market. Defining the market accurately is, therefore,
an important pre-requisite for better understanding the portfolio position.

 Step 3: Calculate the relative market share

Market share is the percentage of the total market that is being catered to by
your company, measured either in revenue terms or unit volume terms. We use
Relative Market Share in a BCG matrix, comparing our product sales with the
leading rival’s sales for the same product.
Relative Market Share = Product’s sales this year / Leading rival’s sales this
year

 Step 4: Find out the market growth rate

The industry growth rate can be easily found through free online sources. It can
also be calculated by determining the average revenue growth of the leading
firms. Market growth rate is measured in percentage terms.

Market growth rate is usually given by: (Product’s sales this year – Product’s
sales last year)/Product’s sales last year
Markets with high growth are ones where the total market share available is
expanding, so there’s a lot of opportunities for all companies to make money.

 Step 5: Draw the circles on a matrix

Having calculated above measures, now you need to just plot the brands on the
matrix. The x-axis shows the relative market share and the y-axis shows the
industry growth rate. You can plot a circle for each unit/brand/product, the size
of which should ideally correspond to the proportion of revenue generated by it.

ADVANTAGES:
 It is simple and easy to understand.
 It helps you to quickly and simply screen the opportunities open to you,
and helps you think about how you can make the most of them.
 It is used to identify how corporate cash resources can best be used to
maximize a company’s future growth and profitability.
 The BCG Matrix produces a framework for allocating resources among
different products and makes it possible to compare the product portfolio
at a glance.

LIMITATIONS:

 BCG Matrix uses only two dimensions, relative market share and market
growth rate. These are not the only indicators of profitability,
attractiveness or success.
 High market share does not always lead to high profits since there is
also a high cost that goes into getting a high market share.
 At times, dogs may help the business or other products in gaining
competitive advantage.
 The model neglects small competitors that have fast-growing market
shares.
EXAMPLE:
Let us consider the BCG matrix of L’Oréal for example. For simpler
understanding, we look at L’Oréal’s business segments and overall growth.

 Step 1: Choose the product/firm/brand

We choose the firm L’Oréal for analysis.

 Step 2: Identify Market

The chosen market is the Cosmetics Industry which includes primarily-
Skincare, Makeup, Haircare, Hair colour and Fragrances.

 Step 3: Calculate Relative Market Share

Tabulated below:
L’OREAL MARKET LEADING RIVAL’S RELATIVE CATEGORY
CATEGOR SHARE RIVAL MARKET MARKET GROWTH
Y SHARE SHARE RATE

Skincare $31.6 bn Unilever $24 bn 129% 6.5%

Make- Up $27.1 bn P&G $27.5 bn 98.5% 7.14%
Hair Care 3% Unilever 8.84% 33.9% 3.1%
Hair Colour 9% Henkel 6% 150% 8%
Fragrances 4.1% Chanel 4.5% 91% 2.5%

 Step 4: Find out Market Growth rate

Market growth rate is usually given by: (Product’s sales this year – Product’s
sales last year)/Product’s sales last year

Overall Growth rate in Cosmetics Industry (as of 2018) = 4.8%

 Step 5: Draw the circles on a matrix