Well a tool that frequently comes up
in the business environment and a lot of
at different businesses actually use them as what we call a SWOT Analysis and
SWOT is acronym for strengths
weaknesses opportunities as well as the threats
swot analysis is a tool that a company uses
to complete an objective analysis
of that particular company
now you don't have to necessarily work for the company to
conduct a SWOT analysis
but they have a lot of different benefits that we'll actually review
so all first thing
there are four different quadrants or four different areas that
businesses have to complete analysis and which means they have to do a little bit
of research and find out
you know what are some of the things that they're good at
not so good at
in the way the swot analysis is broken up
is there are categories that are considered to be internal
and there are categories that are considered to be external
now something that is internal
is something that the firm or the company has control over
they typically have
some effect
on what goes on in the internal environment
and those are actually strengths
as well as weaknesses those are considered to be
internal
factors because the company usually
has some control over what they're good at
and what they are not so good
and going to these one by one of strength
is this something that the company does
that provides itself a competitive advantage something that they do that no
other company
does better than them
this is that the thing that that the company is known for
for example
a company like wal-mart
one of their largest strengths
is the fact that they can maintain a very low cost which allows them
to price their products
much lower than a lot of their competitors can
because they have the ability to keep their costs low and that has a lot to do
with the fact
but they're just so large of a corporation
they can demand certain concessions from suppliers
because they're purchasing such a large quantity of goods that makes up for it
on that end there
that would be a strength for wal-mart of course
positive brand recognition is another example of a strength
some companies are well known you see the image and the logo
and you instantly have positive feelings it evokes positive emotions
regarding a particular brand
and those types of companies merely
have to put their logo on a particular product and people would buy it
regardless because they have strong
brand recognition
they're viewed positively they've produced quality products and services
before
and that of course contributes
to a strong brand recognition
another example is a skilled workforce a skilled workforce is a very
significant strength
because human resources are in large part is the greatest asset that most
companies can have and that's good
quality skilled employees to do the work
they're very hard to come by
employers that can retain their workers
continually train them
can serve as a competitive advantage one example of give you is Costco
Costco is very well known
for having a longer or higher tenure
track
then at most other
companies in that same industry
now the retail environment is very
heavily
dependent upon obviously people but there is a lot of turnover people are
are costly being hired
and leaving and hired and leaving
and the typical retail model if you're trying to maintain low
prices you typically have to maintain a low costs mean that you don't pay your
employees very significantly
well Costco has done something kind of outside of the norm for that industry
they pay
very high wages for the industry they offer benefits for part-time employees
and a lot of other attractive perks
that some of the other retailers don't necessarily offer
and that provides them with a benefit of having workers that stay
there longer
the tenure for the average worker at Costco is much greater
than the tenure for a worker at let's say wal-mart for example
which historically pays very very low wages
comparatively speaking to other companies within the industry
and so that gives an advantage because if you're not having to retrain your
workers over and over
they're probably going to get
good at what they do over time
right someone who's worked for a company for three to five years
is going to probably do that job better and more efficiently
than someone who was work for the job less than a year
on top of that
that also has a cost savings because instead of committing resources and
management resources into training new employees
those are resources they can be devoted
to other areas so that provides a significant advantage
next while review is financial resources and that includes
access to cash
cash is a very very
important resource because without it not a lot of things can happen
unfortunately
if companies have a large amounts of cash on hand
that enables them to pursue different options they have options for that
matter if an opportunity presents itself
their company can then take advantage of that opportunity
example of one is apple
has a significant amount of cash on hand somewhere in the realm of one hundred
and ten billion dollars in cash
which is a significant amounts more than any other
U.S. company
and just to put that in perspective that's
roughly
Apple's operating costs on an annual or per year basis is about ten billion
dollars
so that essentially means that Apple can continue to operate
for eleven years
without making any money whatsoever and still cover its operating costs
which is very significant now we all know that
that probably won't happen people will continue to purchase Apple products
but obviously comforting to know that you have that much money set aside
for a rainy day that in the event
that something would happen
you know economy worsens for any reason
you're positioned well to weather the storm and that's a very significant
strength especially in economic times in which we're in
now in addition to that we also have
weaknesses
weaknesses are things that the company does
that aren't
necessarily positive they can
potentially
be a liability
for them
you'll find that strengths and weaknesses what generally is not a
strength can potentially be a weakness
but not
all the time certain things
companies might be
somewhat good at might not be a significant weakness but it still can
be
and so obviously very negative brand recognition right companies that have
poor customer service and it's widely known
that is a significant weakness because that affects
future customers going to that particular company to purchase products
if they've heard about someone having a bad experience in the past the past
things like expiring intellectual property
patents trademarks copyrights
at certain things there are no longer going to be renewed
can be a a weakness
rising costs
is a significant weakness because that reduces margins
having unskilled work force
provides a weakness because you're committing multiple resources into
training
and obviously a lack of financial resources
one thing i will say is there are more
strengths and weaknesses to consider these are merely a few examples of
some things that maybe you could look at
to determine if a company is
strong in one area
or maybe that they're not maybe they're additional resources should be committed
to a particular area
just because something is a weakness doesn't mean there has to stay a
weakness
but the benefit of using such a tool
is to identify those weaknesses
put resources towards them and
turn those into strengths or at least not as a significant weakness
now opportunities
when we talk about opportunities and threats
opportunities and threats are considered to be external
to the company
and what that means is that the company can't necessarily affect
fact or change these things
these things
happen
and it's up to the company
who try and recognize
that as an opportunity
and obviously if they were recognized something as an opportunity
that can serve
as a potential avenue for growth and profitability
if an opportunity is not seized they can quickly turn into a threat
as you'll see a couple moments here
so examples of opportunities the most notable one probably special in the time
that we live in his new technology
and technology is rapidly changing
it has so over the last several decades
and that's provided a lot opportunities for some firms you look at companies
like Amazon for example Amazon was able to
look at the opportunity of digital
books and digital media
and obviously was the first to market when they came out with their Kindle
E-Reader
no other company was in that particular market at the time
in fact
the sentiment, at least prior to that was that
digital books would never
surpass physical books in popularity
with physical books you
can open them
you can feel them
you have the ability to show them and it's very prestigious, everyone likes
the smell of a new book
and that was the thought process. Why would people want a digital book?
and so this was a new technology at one point that provided a it great
opportunity for Amazon because we all know
we have the benefit of obviously seeing what happened right
and knowing
that digital books have even surpassed physical books in terms of sales
and so that technology obviously is a significant opportunity for Amazon or
was an opportunity for them
now that same technology
posed a threat for other companies right
companies like Borders for example which Borders is unfortunately now
obviously no longer operating
but they failed to adopt that technology they fail to foresee
the impact it would have on the entire industry
and that of course led to their eventual demise
the same thing took place when apple came out with itunes. People can now
purchase digital
rights to songs not necessarily a physical cd
and so a lot of
businesses that specialized in selling
cds
obviously did not want to continue to operate because that was a a threat
an opportunity at one point that they failed to adjust to
additional examples of opportunities are relaxing government regulations
right initially regulations that you have to abide by its government is to
relax those
obviously that is a cost savings and i can be an opportunity
elimination of international trade barriers can be an opportunity
if you're prohibited from trading your product with a certain country and all of a sudden
those barriers go away
that obviously would be an opportunity
that would be a threat though if you are a company operating in that country
and your government prohibits any outside companies from doing business
with the
that consumers in that country
now well obviously be a threat because now there's more competition
and next we have changing consumer preferences consumer preferences
change
very frequently
and companies try to stay in tune with what customers are interested in what
products they want what services they want
and things change fairly regularly
and so obviously if customer preferences change that can provide an opportunity
if the company's well-positioned take advantage of that
and obviously
that can also be a threat
if consumers are changing away way from using
a particular product or service
that you frequently sell
which isn't good
and the last thing here is threats
now threats are obviously changes in the external environment that have the
ability to negatively impact the company
opportunities and threats are very interlinked the very related
obviously opportunity that's not seized tends to become a threat
examples include emergence of new competitors into the market
white certain companies that do well in a certain industries keeping with
the example that I gave you before Amazon with regards to selling digital books
did so fairly well obviously was successful
and you see the emergence of a lot of new competitors Apple
obviously is a key player
you have Google who is now offering a digital books marketplace
Barnes and Noble does the same thing
and so now you see the emergence of competitors which is a potential threat
now
you have to evaluate how significant a threat is right
and so it may not be significant but that's something that you would have to
look into
at pending lawsuits is another thread of course
lawsuits not only require you to commit financial resources which goes back
to do you have financial resources right if that's a weakness
then lawsuit can pose a significant threat because those gets expensive
especially along that they are drawn out
but they also hurt your image
and so lawsuits are are not very positive positive typically most companies who
want to settle
before going to court in the long drawn-out court proceedings because they
can be very detrimental to
a brand
and obviously new technology which we went over
which not only applies to digital books but you look at streaming technology
you deal with Blockbuster, Hollywood Video and companies that actually rented
actual dvds
now you see Netflix their dvd mail-order business streaming content directly to
homes
obviously making it so that
going to a actual physical location to access those materials
wasn't very necessary anymore so
these are the four areas that companies need to consider strengths things that
they do well internally
weaknesses things that they can control that they do not do very well
opportunities and threats which are all external potential
avenues to achieve greater profitability and greater growth
and then threats
things that have the ability to negatively
impact that particular company there
and what you'll find with these is there needs to be some good analysis that's done
here obviously if you do
kind of a cursory review
of some of these different categories
you're not going to find the truly valuable things there
and not only to companies use these to evaluate themselves
but if you're considering investing in a particular company you can use the same
tool
to hopefully consider some of the things the company is good at what are some
other threats what are their opportunities
and you can kind of gauge those and see what are the likelihood at the company
continue do well
it could be something to look out.