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