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Introduction to the SWOT Analysis: The Art of Conducting a Situational Analysis - YouTube
Channel: Alanis Business Academy
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In February of 2011, international book and
music retailer Borders Group Inc. declared
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bankruptcy.
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After forty years in business, and almost
20,000 employees, Borders had finally succumbed
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to competitive pressures as well as the disruptive
impact of technology.
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A product of the harsh and changing business
landscape, Borders, along with many companies,
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failed to accurately assess its business and
the possible disruptions to it.
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In this week's video, we're going to re-explore
the popular evaluative tool: The SWOT Analysis.
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And discuss how we can use the SWOT Analysis
to gain a better understanding of our businesses,
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products, industries, and even ourselves.
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Chances are you've at least heard of the term
SWOT Analysis.
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But what actually is a SWOT Analysis?
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And how can it be used to gain a better understanding
of our own businesses as well as the environment
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that they operate in?
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Well a SWOT analysis is actually a tool used
to help an investor, business-owner, and really
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anyone for that matter, gain a better understanding
of an entity of some kind.
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From an investor perspective, the SWOT analysis
is often used to complete an objective assessment
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of a business, but the same analysis can actually
be conducted on an industry, product, or even
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an individual.
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The acronym SWOT represents four distinct
areas: strengths, weaknesses, opportunities,
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and threats.
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Each area of the SWOT analysis is designed
to better familiarize the one conducting it
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with the internal working of the business
as well as the external forces affecting that
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business.
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Strengths represents internal characteristics
of the business that provide it with an advantage
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over others.
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Basically these are areas in which the business
excels and is often a source of a competitive
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advantage.
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Common strengths include: brand recognition,
brand loyalty, a strong financial position
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often indicated by an abundance of cash, a
skilled and committed workforce, possible
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intellectual property such as patents and
trade secrets, and even significant cost advantages.
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For example, Amazon made a name for itself
by originally selling books online at discount
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prices.
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The strength that put Amazon in a position
to be able to offer those discount prices
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was its ability to maintain a cost advantage.
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By avoiding the overhead associated with traditional
retail establishments, Amazon was able to
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price products for much lower than traditional
brick-and-mortar book sellers such as Barnes
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and Noble and Borders.
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Popular membership wholesaler Costco benefits
from a more talented and committed workforce
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relative to the retail industry.
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This benefit, partly the result of paying
higher than normal wages and providing health
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insurance to part-time workers, serves to
reduce voluntary turnover and make a more
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seasoned workforce.
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The important thing to remember about strengths
is that they provide the business with a significant
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advantage and are often difficult to mimic.
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The other thing to remember is that they represent
internal characteristics, meaning that the
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company has some control over their development
and implementation.
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Weaknesses represent internal characteristics
of the business that put it at a disadvantage
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in relation to competitors.
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Essentially these are areas in which the business
does not excel and can serve as liabilities
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in the future.
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Although coming to terms with our weaknesses
is never fun, doing so allows us the opportunity
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to devote the time and energy necessary to
improve in those areas.
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From a business perspective, weaknesses make
a company vulnerable to competitors, which
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is why if a weakness is identified it's typically
a good idea to attempt to lessen the significance
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of it.
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Weaknesses often include: negative brand reputation,
poor product quality, an uncommitted workforce,
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inexperienced or otherwise poor quality management,
aging equipment and technology, poor distribution
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networks, and even and uncomplimentary organizational
structure.
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Notice that like strengths, weaknesses represent
internal characteristics.
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Meaning they can be controlled by the business
to some extent.
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Consider the impact of a poor distribution
network.
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Even if the business produced goods and services
that were in demand, it would have little
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significance if those goods and service couldn't
be offered in such a way that consumers could
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readily purchase them.
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The next element of the SWOT analysis are
opportunities, which represent possible changes
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in the business's external environment that
can benefit the company if taken advantage
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of.
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These opportunities are what we refer to as
external factors, meaning that the business
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does not have the ability to control them.
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The best that the business can do is anticipate
them, and adapt to them.
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Opportunities, if leveraged properly, can
turn into strengths in the future.
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Common opportunities include: changes in consumer
preferences, new developments in technology,
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relaxing government regulations, the removal
of trade barriers, and even the altering demographics
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of a society.
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Take for instance the societal shift towards
a healthier lifestyle, which represents a
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change in consumer preferences.
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This change brought about a great deal of
opportunity for many different types of businesses.
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Many grocery stores and restaurants began
to diversify their product offerings, incorporating
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organic, gluten-free, and low-fat food alternatives
for consumers.
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Technology also represents a significant opportunity--as
well as possible threat--to many businesses.
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Companies such as Dell, Ebay, Amazon, Netflix,
and even more recently Uber, have all found
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a way to leverage advances in technology in
order to provide value for their consumers.
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From a business perspective it's always important
to be scanning the environment for possible
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opportunities, as they can serve as a unique
advantage for companies if leveraged.
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The last element of the SWOT analysis are
threats.
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Like opportunities, threats are based on changes
in the business's external environment.
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However threats can harm the company in some
way if they are not addressed.
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Truthfully, many threats were once likely
opportunities that the business failed to
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either identify, or maybe they identified
the threat but downplayed its significant.
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Either way, the business failed to make a
concerted effort to insulate itself from the
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threat.
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Common threats can include: changing consumer
preferences, new developments in technology,
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impending government regulation, expiring
patents, and even the emergence of new competitors.
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Expiring patents can be a significant threat
to pharmaceutical companies.
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Now the possession of valuable patents is
certainly a strength, but a patent that is
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expiring is like the equivalent of blood in
the water.
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And that blood in the water tends to attract
competitors who can now sell generic versions
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of the medication.
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New government regulation and taxes, another
thing that business's can't directly control,
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can be a substantial threat as well.
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Consider the highly debated tax on medical
devices that is part of the 2010 Affordable
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Care Act.
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Many argue that this tax on medical devices
will make it far to expensive for medical
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device manufacturers to create products such
as hip joint replacements and heart stints,
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and force them to offshore production in an
effort to keep costs down.
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One survey predicted a loss of 43,000 jobs
in direct response to the tax.
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Although there is a possibility this tax will
be delayed as congress continues to attempt
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to craft a working budget and raise the debt
ceiling, it still represents a credible threat
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to relevant businesses who should be attempting
to minimize the affects caused by its implementation.
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This has been Introduction to the SWOT Analysis.
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For questions please leave them in the comment
box below and I'll do my best to get back
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to those in a timely fashion.
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And remember to subscribe to Alanis Business
Academy to have our latest videos sent to
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you while you sleep.
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Thanks for watching.
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