tools for strategic planning - tools for strategic planning

8/3/2019 Tools for Strategic Planning - Tools for Strategic Planning

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Engineering

Management

Tools for Strategic Planning

SWOT ANALYSISPORTER FIVE FORCES

ABOUT SWOT ANALYSIS

a methodology born from marketingresearch, used to analyze competitivecontext and in particular productstrategiesStrengths

Weaknesses

Opportunities

Threats

The purpose of SWOT Analysis

It is an easy-to-use tool for developing

an overview of a companys strategicsituation

It forms a basis for matching yourcompanys strategy to its situation

It provides the raw material to do moreextensive internal and external analysis

SWOT: EXTERNAL CONTEST

OPPORTUNITIES: area of the externalenvironment that can allow the organizationto obtain positive performances

THREATS: area of the externalenvironment that affect in a negative waythe possibilities of the organization to

obtain positive performances


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Opportunities An OPPORTUNITY is a chance for firm

growth or progress due to a favorablejuncture of circumstances in thebusiness environment.

Possible Opportunities:Emerging customer needs

Quality Improvements

Expanding global markets

Vertical Integration

Threats A THREAT is a factor in your

companys external environment thatposes a danger to its well-being.

Possible Threats:New entry by competitors

Changing demographics/shifting demand

Emergence of cheaper technologies

Regulatory requirements

SWOT: INTERNAL CONTEST

STRENGTHS: resources, competences orproductive factors that let an organizationrealize the strategies that support itsmission

WEAKNESSES: elements that interferewith the realization of the strategy (lack of

resources, competencies or productivefactors)

WHY THE SWOT ANALYSIS

To change mental attitudes towards problems

To work in team on different kinds of problems

To analyze problems from 4 different points of

view

To understand strength and weakness and toturn threats into opportunities


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SWOT ALLOWS TO:

Capitalize strengths

Minimize weaknesses

Seize opportunities

Answer back threats

Summary

Strengths: areas of excellence

Weaknesses: areas of improvement

Opportunities and threats: from theexternal environment

Strengths:What do you do well?What unique resources can you draw on?What do others see as your strengths?

Weaknesses:What could you improve?

Where do you have fewer resources than others?What are others likely to see as weaknesses?

Opportunities:What good opportunities are open to you?What trends could you take advantage of?How can you turn your strengths intoopportunities?

Threats:What trends could harm you?What is your c ompetition doing?What threats do your weaknesses expose you

to?

SWOT Analysis Worksheet SWOT Matrix- Four Types ofStrategies

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)


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Developing the SWOT

List firms key internal Strengths

List firms key internal Weaknesses

List firms key external Opportunities

List firms key external Threats

SWOT MatrixStrengths S

List Strengths

Weaknesses W

List Weaknesses

Opportunities O

List Opportunities

SOStrategies

Use strengths to take

advantage ofopportunities

WOStrategies

Overcoming

weaknesses by takingadvantage of

opportunities

Threats T

List Threats

STStrategies

Use strengths to avoid

threats

WTStrategies

Minimize weaknesses

and avoid threats

External

environment

Internal

environment

15

Develop a newemployee benefits

package

=Strong union

activity (threat)+

Poor employee

morale (weakness)

Develop new products

for older adults=

Decreasing

numbers of young

adults (threat)

+Strong R&D

(strength)

Pursue horizontal

integration by buying

competitor's facilities

=

Exit of two major

foreign competitors

from the industry(opportunity)

+Insufficient capacity

(weakness)

Acquire Cellfone, Inc.=

20% annual growth

in the cell phone

industry(opportunity)

+Excess working

capacity (strength)

Key Internal Factor Key External Factor Resultant Strategy

Matching Key Factors to Formulate Alternative Strategies

Limitations with SWOT Matrix

Does not show how to achieve acompetitive advantage

Provides a static assessment in time

May lead the firm to overemphasize asingle internal or external factor in

formulating strategies


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Strategy Review,

Evaluation, & Control

Are strengths still strengths?

Have we added additional strengths?

Are weaknesses still weaknesses?

Have we developed other weaknesses?

Monitor Strengths & Weaknesses;Opportunities & Threats

Strategy Review,

Evaluation, & Control

Are opportunities still opportunities?

Other opportunities develop?

Are threats still threats

Other threats emerged?

Are we vulnerable to hostile takeover?

Monitor Strengths & Weaknesses;

Opportunities & Threats

Porter Five Forces

The purpose ofFive-Forces Analysis

The five forces are environmental forces

that impact on a companys ability tocompete in a given market.

The purpose of five-forces analysis is todiagnose the principal competitivepressures in a market and assess how

strong and important each one is.


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Porter Five Forces

1. Threat of new entrants

2. Bargaining powers of suppliers

3. Bargaining powers of buyers

4. Threat of substitute products

5. Rivalry among competing firms

Threat of New EntrantsThreat of New Entrants

Barriers to

Entry

Barriers to

Entry

Expected RetaliationExpected Retaliation

Government PolicyGovernment Policy

Economies of ScaleEconomies of Scale

Product DifferentiationProduct Differentiation

Capital RequirementsCapital Requirements

Switching CostsSwitching Costs

Access to Distribution ChannelsAccess to Distribution Channels

Cost Disadvantages IndependentCost Disadvantages Independent

of Scaleof Scale

Bargaining Power of SuppliersBargaining Power of Suppliers

Suppliers exert power

in the industry by:

Suppliers exert power

in the industry by:

* Threatening to raise* Threatening to raise

prices or to reduce qualityprices or to reduce quality

Powerful suppliers

can squeeze industry

profitability if firms

are unable to recover

cost increases

Powerful suppliers

can squeeze industry

profitability if firms

are unable to recover

cost increases

Suppliers are likely to be powerful if:Suppliers are likely to be powerful if:

Supplier industry is dominated by aSupplier industry is dominated by afew firmsfew firms

Suppliers products have few substitutesSuppliers products have few substitutes

Buyer is not an important customer toBuyer is not an important customer tosuppliersupplier

Suppliers product is an importantSuppliers product is an importantinput to buyers productinput to buyers product

Suppliers products are differentiatedSuppliers products are differentiated

Suppliers products have highSuppliers products have highswitching costsswitching costs

Supplier poses credible threat ofSupplier poses credible threat offorward integrationforward integration

Bargaining Power of BuyersBargaining Power of Buyers

Buyers compete

with the supplying

industry by:

Buyers compete

with the supplying

industry by:

*Bargaining down prices*Bargaining down prices

* Forcing higher quality* Forcing higher quality

* Playing firms off of* Playing firms off of

each othereach other

Buyer groups are likely to be powerful if:Buyer groups are likely to be powerful if:

Buyers are concentrated or purchasesBuyers are concentrated or purchases

are large relative to sellers salesare large relative to sellers sales

Purchase accounts for a significantPurchase accounts for a significantfraction of suppliers salesfraction of suppliers sales

Products are undifferentiatedProducts are undifferentiated

Buyers face few switching costsBuyers face few switching costs

Buyers industry earns low profitsBuyers industry earns low profits

Buyer presents a credible threat ofBuyer presents a credible threat ofbackward integrationbackward integration

Product unimportant to qualityProduct unimportant to quality

Buyer has full informationBuyer has full information


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Threat of Substitute ProductsThreat of Substitute Products

Products

with similar

function

limit the

prices firms

can charge

Products

with similar

function

limit the

prices firms

can charge

Keys to evaluate substitute products:Keys to evaluate substitute products:

Products with improvingProducts with improving

price/performance tradeoffsprice/performance tradeoffs

relative to present industryrelative to present industry

productsproducts

Example:Example:

Electronic security systems inElectronic security systems in

place of security guardsplace of security guards

Fax machines in place ofFax machines in place of

overnight mail deliveryovernight mail delivery

Threat of

Substitute

Products

Threat of

Substitute

Products

Threat of

New

Entrants

Threat of

New

Entrants

Threat of

New

Entrants

Rivalry Among

Competing Firms

in Ind./Business

Rivalry Among

Competing Firms

in Ind./Business

Bargaining

Power of

Buyers

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers

Bargaining

Power of

Suppliers

Porters Five Forces- Model of CompetitionPorters Five Forces- Model of Competition

Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:Intense rivalry often plays out in the following ways:

Jockeying for strategic positionJockeying for strategic position

Using price competitionUsing price competition

Staging advertising battlesStaging advertising battles

Making new product introductionsMaking new product introductions

Increasing consumer warranties or serviceIncreasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunityOccurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse offPrice competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, butAdvertising battles may increase total industry demand, but

may be costly to smaller competitorsmay be costly to smaller competitors

CutthroatCutthroat competitioncompetition is more likely to occur when:is more likely to occur when:

Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Numerous or equally balanced competitorsNumerous or equally balanced competitors

Slow growth industrySlow growth industry

High fixed costsHigh fixed costs

Lack of differentiation or switching costsLack of differentiation or switching costs

High storage costsHigh storage costs

Capacity added in large incrementsCapacity added in large increments

High strategic stakesHigh strategic stakes

High exit barriersHigh exit barriers

Diverse competitorsDiverse competitors


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The Five Forces are Uniqueto Your Industry/ Business

Five-Forces Analysis is a framework for

analyzing a particular industry orbusiness.

Yet, the five forces affect all the otherbusinesses in that industry/business.

The end

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